Investment Opportunities in Detroit for California Real Estate Investors
For investors in high-growth urban areas, such as California, real estate can be a hefty investment. High prices and over-saturation of investors in the area can cause the market to be hard to manage, leading to low return on investments for many property owners.
It is for this reason that many property investors have begun to look outside of the borders of their own state. With the increase in available turnkey properties and companies to manage them, investing in out of area cities has become easier than ever. When it comes to capitalizing on an investment, Detroit offers great benefits.
Detroit vs. California Market Rates
When it comes to the real estate market in Detroit vs. California, the difference is staggering. For 2017, the projected cost of housing in California is set to raise 2-6% higher this year, with average rates already escalating over 50% from May 2012 to present day. While this increase is great for sellers, it can be difficult for investors to keep in line with current rental rates as their costs will be high before adding in property management services and other fees. A higher sale price will also lead to a lower return on investment, especially if the property is being financed.
In Detroit, the projected increase in sales prices is similar, coming in at 6.4%; however, the average median price is still significantly lower than any other area in the US at the moment. Their approximate cost seems to have only reached levels comparable to the fall of 2007, making their median prices below national average by approximately 15%.
Economic Growth in Detroit
While the national economic growth average has slowed by 1.9%, Detroit has shown a considerable increase in development in the last year. In 2016 alone, Metro Detroit had at least 110 development deals, including 32 new restaurants and bars. In addition to these new developments, 2017 brings the launch of the new QLine transportation system, several multi-million dollar investments from Ford Motor Company and Fiat Chrysler, and the opening of the $627 million Little Caesar’s Arena. All of these factors point to a steady increase in job availability over the next few years, thus increasing the city’s economic growth.
Recently, Detroit was ranked as one of the most affordable cities in the US. This, paired with the recent economic boom, points to favorable conditions for an increase in residency. A hearty economic growth means more than just available jobs. As more and more people flock to the city in search of work, rental demand will increase leaving investors with high occupancy rates, quick turnover during vacant periods, and increased rental values.
Return on Investment Rates
Detroit is currently rated as one of the hottest markets for investors for one major reason: high return on investment rates. A return on investment rate (or ROI) is determined by dividing the asset’s whole value into its operating income, and it is one of the biggest factors experienced investors take into account when deciding on a property.
In major markets, like Los Angeles for example, investors find their ROI rates to be in between 4.5-6%. In Detroit, however, ROI rates are running between 6.75-8.5%. In addition to operating at a higher ROI, Detroit’s rates seem to have remained consistent, whereas California and other markets have seen a heavy fluctuation in rates over the last several years. This has led to an influx of foreign investment in the Detroit Metro area, as it is proven to have the most stable ROI in the country.
In addition to high ROI rates, Detroit is currently undergoing a city-wide revitalization. By reducing blight and welcoming new investors, Detroit’s average property appreciation value is set to rise steadily over the next few years. Investors who get in on the ground floor will have a lot to look forward to in the coming years.
Current median pricing in California for a regular single-family home (not a turnkey property) is $490,000 with rental prices averaging at $2,500. In Detroit, the median pricing is running approximately $38,200 with rental prices averaging at $750.
Entry-Level Investors are Welcome in Detroit
If it’s between California or Detroit to make your first real estate investment, Detroit is the clear winner. With California’s rising housing prices, purchasing a secondary property can be extremely costly. If the purchase is being made through the use of a mortgage, setting an affordable rental price can be difficult and can start your investment off in the red before you even get started.
For entry-level investors who are looking to put out the lowest up-front costs, Detroit is the place to start. The average turnkey investment brokered in the area runs between $50,000 to $75,000 for a fully remodeled, ready to rent property. In California, a similar turnkey investment would run approximately from $169,000 all the way up to $400,000, depending on the area the property is located in.
Investment Companies Available
As the investment interest in Detroit has grown steadily over the last several years it has paved the way for a multitude of experienced, high caliber investment property companies. These companies are familiar with working alongside out of state or out of country investors to find the right properties to suit their needs. Most of these local real estate investment companies offer property management services and tenant selection and are very capable at explaining the process to first time investors.
Detroit vs. California
When you analyze all of the data available, Detroit is the clear winner for investing in real estate. Between higher ROI rates, an ever-growing economic boom, and lower than national average median pricing, investing in Detroit real estate vs California seems to be the wisest choice. Factor in the attention Detroit has been getting from younger generations in recent years, the newly introduced revitalization plans, and burgeoning job availability, and the Detroit real estate market is primed for a substantial success.
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