Overseas property news - Detroit: don't believe the bad press

Detroit: don't believe the bad press

Don't believe the bad press: Detroit can still deliver the goods for property investors.

Reuters recently reported that some investors had experienced trouble in Detroit, with properties vandalised and left untended, amid alleged scams and poor practices.

US property experts PCG Invest, though, say that these are a minority of cases and that success is still possible, providing that one carries out careful research.

“Our high success rate is due to the amount of time we spend on sourcing the right properties and developing exclusive relationships with the most competent and ethical suppliers,” explains Eskor, a spokesperson for the estate agency.

“Thoroughness and integrity is at the Centre of everything we do.”

"Some of our clients came to us looking for help when they had been given a poor service by other companies, who were solely focused on the lowest prices with promises of exceptionally high yields," says CEO Darren Brown.

"Not all companies caught up in these problems do so intentionally," he explains. "Often they just get carried away and like the investors they are selling to, they can be caught believing everything they read."

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People believing everything they read is nothing new for Detroit, which filed for bankruptcy a few years ago.

“The majority of the media stories coming from Detroit are bad ones and that perception does create reality to most so it’s easy to understand why the area and its potential merits are looked at with extreme caution,” says Brown. “After all, it is easier to speak badly about something and avoid it, if the stories you read support your argument.”

He highlights other markets around the world that were also tainted with inaccurate reputations, where investors with no fear of that misconception have since enjoyed staggering returns.

“Look at Shoreditch and Hackney in the UK, Brooklyn and Harlem in the USA. These property markets were very easy to avoid when the majority told us they were poor investments, yet now they are areas that have made some of the smarter investors millions because they looked at the whole picture and used a professional company to help them succeed.”

A recent report from the Urban Institute highlights the ongoing recovery in Detroit’s housing market, although it acknowledges that, like many markets post-global financial crisis, the recovery is gradual and uneven.

"While there is not yet consensus on Detroit’s path forward, a wide range of stakeholders, including philanthropy, business, non-profits, and the public sector have invested significant resources (and brainpower) to restore prosperity to what was once the fourth most populous city in the United States," reads the report. "Over the past year, certain parts of the city and housing market have rebounded."

 

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Indeed, house prices in Detroit rose 19 per cent year-on-year in the first three quarters of 2015. At the same time, delinquency rates have declined from 22 per cent in September 2014 to 11.9 per cent in September 2015, and are now on pace to drop below pre-crisis levels.

Despite the bad press and the strengthening of the US currency, meanwhile, overseas interest remains strong. Michigan was the sixth most popular US state on TheMoveChannel.com in 2015, accounting for 1 in 6 of all US property-related enquiries. In January 2016, enquiries for property in the state, primarily driven by Detroit, multiplied five times.

“The significant levels of geo-political uncertainty that the world is currently experiencing has created a surge in investor interest,” says Eskor.

Investors are approaching PCG from around the world, with their main client base now coming from the Middle East. Investors from the UK, though, are also active, as they brace for a stamp duty surcharge on second homes.

“With the new stamp duty measures in place for second home buyers and the extra taxes involved in the UK buy-to-let sector, those investors that want to make upwards of 12 per cent NET with a strong capital growth and very attractive tax planning measures in place should look no further than the USA and Detroit, in particular,” comments Brown.

Eskor notes that investor attitudes have also changed in the currency global climate, with buyers focused more on stability and long-term capital growth than short-term yields.

Indeed, regardless of the dollar’s performance, properties in Detroit remain more than 50 per cent below the market peak of 2006.

“The 2008 crisis added further to the demise of Detroit but it certainly was not the cause,” explains Brown. “The collapse of Detroit started way before with the Change from being an industrial powerhouse with Henry Ford and Chrysler which took with it over 55 per cent of the economy and more in some places, this led to a mass exodus of the population creating empty housing stock and mass unemployment which led to increased crime and social unrest.”

The story today, though, is one of an emerging market within the USA, as tech companies and young professionals move to the area, which has become something of an affordable rival to Silicon Valley.

"We have also added an exclusive finance option," says Brown, "which clearly demonstrates the growing strength of the area as banks and financial institutions are again lending to foreign investors."

The product offers up to 70 per cent LTV with a 30-year amortised payment over 5-10 years, from 7.25 per cent interest rate and a minimum loan value of $45,000.

Investors can start with a 2 property $100,000 portfolio with a $45,000 down payment, with the leveraging investors would yield an annual ROI of 25 per cent.

“Exciting times are ahead for Detroit and its investors,” he concludes.

 

PCG Invest share three tips for investing in Detroit property:

1. Find the right house

"Get the right house that is in the right area, is in good condition, has no debts or encumbrances and is occupied by a paying tenant."

2. Hire the right management company

"Make sure you have the right management company in place to manage your home, who can act quickly and appropriately to keep the property tenanted and performing."

3. Use an experienced agent

"Start in the right place by using an experienced professional company to help you achieve points one and two and remain as your service provider throughout your investment providing the necessary support through to your exit."

 

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