What Detroit Real Estate Market can offer to Florida Investors
For investors living in high-growth urban areas, finding viable rental properties can be trying. For investors located in the Sunshine State, high demand areas—like Orlando, Kissimmee, or Miami—can be a hefty investment with not much return on investment.
It is for this reason that many Florida investors have been packing up their investment portfolios and heading to the Motor City.
Detroit is currently listed as one of the top cities in the United States for real estate investors. As the business has begun to grow, property investment and management companies have opted to capitalize on the shift in the market—increasing the availability of turnkey properties and services to manage them.
Detroit vs. Florida Market Rates
When reviewing the numbers, the difference between market rates in Florida and Detroit is staggering. As of 2017, the cost of housing in Florida has climbed 10% over the last year and is said to have another 1.9% left to go over the next year. While this rise in prices is excellent news for those looking to sell their properties, for those looking for a high ROI property it’s not exactly ideal.
In Detroit, the cost of housing increase has only been at a 6.4% over the previous year. While the overall percentages may be close in line, they have a very different impact on the market itself. Detroit’s median average prices are well below national average, unlike those in Florida. Even with a 6.4% increase in housing costs, Detroit’s average prices still fall well below those in the Sunshine State—approximately 15% lower, to be exact.
As it sits, the entire nation seems have come to an economic growth hiatus. Florida is no different. While the state won’t be seeing a decline, it won’t be seeing a noticeable growth, either—staying at a relative standstill for the projected 2017-2018 fiscal year.
Detroit, on the other hand, has continued to show a steady increase in economic growth for the past several years. Within the last year alone, Detroit saw an addition of 110 unique development deals. For 2017, Detroit is forecasted to see a new transportation system, several multi-million dollar investments from Fortune 500 companies, and numerous rejuvenation projects. Each of these projects increases the job availability in the Metro City for the next several years, which increases the city’s economic growth exponentially.
In addition to a blossoming job market, Detroit has been named as one of the nation’s most affordable cities which is attracting large-scale relocations as young individuals, couples, and families flock to the city in search of a better quality of life and steady job markets. As more people transition into the city’s neighborhoods, rental demand will continue to skyrocket. This is great news for investors as a high rental demand will lead to high occupancy rates, quick turnover in the event of a vacancy, and increased rental values.
Return on Investment Rates
In recent years, Detroit began to earn the ranking of hottest market for investors in the US. Thanks to high return on investment rates. For those unfamiliar with the term, a return on investment is determined by dividing the total value of an asset by the actual cost of operating said asset. For experienced investors, ROI is one of the largest points taken into account during the investment process.
For large markets, such as Los Angelos or Miami, most investors find themselves with a ROI rate in the 4.5-6% range. While this may sound good on paper, it can’t compare to the ROI rates currently boasted in Detroit. For those holding investments in the Metro area, ROI rates are coming in at an impressive 6.75-8.5%. These rates have remained consistent over the last few years, adding another benefit to investing in the Motor City. For those holding investments in tourist areas such as California or Florida, the rates are inconsistent, adding yet another risk factor to the purchase.
In addition to higher return on investment rates, Detroit is currently seeing a steady increase in home appreciation value. To combat the economic downturn faced by the nation during the early to mid 2000s, Detroit’s government began working to rejuvenate the city in order to attract new investors, industries, and residents. Since the inception of the city-wide rejuvenation projects, the area’s home appreciation values have begun to rise and are projected to continue to do so steadily over the next decade. For investors getting in at the start of the market rise, there’s a lot to gain in the next several years.
Detroit Welcomes First-Time Investors
For first time investors, Florida can be a complicated state to get started. As a tourist state, long-term rental demand is lower than a residential state, like in the Midwest. Rental properties are often utilized more for holiday and vacation rentals, making residential, long-term rentals harder to fill, especially during certain times of the year. Inclement weather and high unemployment rates among residents can also make owning a rental property in the Sunshine State complicated, especially for first-time investors.
In addition to the demographics of the state, housing prices in Florida are much higher than those of properties in Detroit. The median average cost of a house in Florida comes in at $279,000. The median cost of a similar home in Detroit is an incredibly low $65,000. For those just getting into the investment business, a lower cost upfront can make all the difference in the success of the investment.
The average turnkey investment brokered in the Detroit area runs between $50,000 to $75,000 for a fully remodeled, ready to rent property. In Florida, a similar turnkey investment would run approximately from $259,000 all the way up to $400,000, depending on the area the property is located.
Detroit vs. Florida
Numbers just don’t lie and when it comes to making a decision between investing in the Sunshine State or putting down investment roots in the Motor City, there’s no contest, Detroit wins, hands down every time. When you consider that Detroit has a lower upfront cost, higher ROI rates, consistently flourishing economic growth, and lower than national average housing costs, Detroit offers a successful rental property portfolio to investors across the globe.
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