Why California Investors Should Consider Investing in Detroit Real Estate
Once a manufacturing hub, Detroit has been climbing its way back to the top of the investment opportunities list for global investors. Having been ranked as one of the hottest cities for out-of-area investors, Detroit offers a wide range of options for investors of all calibers—from first timers to seasoned pros, even for investment corporations.
For investors in California, Detroit offers a wide range of investment options and opportunities which otherwise would not be available if they opted to invest closer to home.
Cost of Living
A rental investment property needs tenants to thrive. But, your tenants also need to maintain a quality of life in order to continue residing in the home. If the quality of life isn’t up to par, you’re likely to have a parade of rotating tenants as they continue to search for the lifestyle they want.
When you look at the cost of living in California versus Detroit, you’re going to see a stark difference. California’s living expenses are astronomical when compared side by side with Detroit’s. In fact, just looking at the San Francisco area, the cost of living is approximately 62.5% higher than the US average, whereas Detroit’s cost of living runs 19% lower than the national average.
Housing is included in the cost of living, with the Detroit housing costs averaging 57% lower than the rest of the nation. This means your tenants will have a substantial income with lower cost outputs, providing you with steady paying, reliable tenants.
Another perk of investing in Detroit over California is your cost output. With lower housing prices in Detroit, your total upfront cost is going to be much lower than if you were to purchase in the California area.
An average home (a three-bedroom, two-bathroom, single family property) purchased in California is going to run you approximately $440,000, with a potential rental income of $1,240. Of course, these numbers increase drastically the more you move toward coveted areas, such as LA or San Francisco. Rental rates in these areas are amplified to approximately $4,442 with homes ranging close to $1,192,500.
The same sized home in Detroit would cost you $41,500 and provide you with a rental income of $750. Rental incomes in the Metro area are, of course, much higher—giving investors the potential to reap a mortgage payment of $1,072 with housing costs barely rising above $65,000.
Return on Investment
When you compare the initial costs of investing in Detroit versus California, the return on investment rate is a clear benefit. Currently, return on investment (ROI) rates in California are coming in at a 4.5-6% range whereas Detroit’s ROI rate is significantly higher at a 6.75-8.5% rate.
Detroit has been making headlines as one of the hottest locations in the country for investments as of the last few years. This fact has not gone unnoticed by large scale investors. Investment interest has been displayed by multiple big-name corporations as far back as 2013. Dan Gilbert, the founder of Quicken Loans, has been funneling money into the Detroit metro area for several years—purchasing multiple lots of commercial properties. DDI Group, a well-known Chinese investment corporation, also began procuring properties in the Motor City.
Other massive corporations investing in Detroit include JP Morgan Chase, who recently invested $34 million in the area between 2014-2017. Capri Investment Group LLC from Chicago has begun compiling an investment project of $200 million and DiverseNote LLC and Universal Tool Equipment and Controls Inc. are investing a combined $7.3 million into the area.
Regardless of caliber or experience, an investor will reap greater potential benefits from investing in the Detroit area over the California market. While the return on investment ratio and upfront average costs should be enough to entice investors to snatch up properties in the Motor City, the constant influx of investments from large corporations should be a great indication of the future of the Detroit real estate market and a sign of things to come for those fortunate enough to invest on the ground floor.