Should you touch it with a barge pole and what other states have to offer!!

Over the last few weeks Detroit has been hit with some negative press due to the state filing for bankruptcy. Now this sort of news will make some investors run far away from investing in the state where as some investors will see this as a good opportunity – we ask some of companies who will be exhibiting with us at Property Investor Show October their views.

Bruce Ailion – ATL Investors

I recently counselled an Australian investor recently who purchased very cheap property in an unsuitable area of Atlanta from someone else.  She paid $38000 for something that is worth at most $25000 she was misled because it was cheap.  She paid $5000 for shoddy work that needs to be redone.  The AC and appliances have been stolen and rather than replace with new to get the place leased she wants to buy used probably stolen equipment with a 3 month warranty that will likely fail and cost more to replace with new than had she purchased new to begin with.   Some people compound one bad decision with an even worse one.  Just because something is cheap does not mean it is a bargain or a good deal, it may just mean no savvy person is willing to take the risk buying.

Detroit has been in a death spiral for some time. While things may not be able to get worse or much worse Detroit is dying, rust belt, cold climate city. One must ask is this a place to cast a common destiny and buy into serious problems that may not get better any time soon.

Shameem Golamy, Head of Rightmove Overseas said: “The saying “every cloud has a silver lining” has never been truer than in the case of the Detroit bankruptcy crisis. I feel This is wishful thinking not thoughtful analysis.  Not every cloud has a silver lining, Hurricane Katrina a “very dark cloud”, did not signal a buying opportunity in the worst hit areas of New Orleans, many of those destroyed communities in New Orleans still look no better than Detroit’s distressed areas in today.  These are crime ridden, impoverished, high crime, lowly educated, blighted and hollowed out communities where decay is all but irreversible.   

The number of searching Detroit is not a proxy for buying interest or investment quality.  Detroit peaked in 1930 and started a steep decline in 1980 which has continued for good reasons with no sign of reversal.  Whereas Atlanta started its steep incline in 1970 for good reasons with no sign or reason to stop.  NAR economist Lawrence Yun Atlanta is expected to be the 3^rd largest city in the US by 2076.  

While I would disagree with the statement every cloud has a silver lining for Detroit, the silver lining for Detroit is more people moving to Atlanta.  The rough economic statement I can agree with is “a rising tide lifts all ships”.  The key to real estate is investing in improving rising markets. 

Annette Hibbler – Michigan Preferred Investment Group

Smart investors, philanthropists and civic leaders and organizations are creating a new Detroit.  Its vision is not farfetched dream but already showing solid markers of innovation and economic recovery. Savvy investors both nationally and internationally not only recognize this unique opportunity but can also see the capital growth potential that lies ahead.  

Those investing in and around the city now are instantly profiting from high ROI returns while the prices are still quite low.  Most of our marketing efforts are online. There has been a significant interest in and purchase of Detroit turn-key rentals and a growing number of them are from international investors specifically from UK and Asia.  We often get requests for blocks of 5, 10, 20 turn-key properties.  The report simply supports our observations.  

HOW DOES DETROIT COMPARE TO OTHER STATES NATIONALLY?

Detroit’s struggles are not unique in and of itself. As of 2012, San Bernardino and Stockton, California also filed for bankruptcy as well as counties in Pennsylvania, Rhode Island and Alabama.

Back in the 1980’s Pittsburgh, PA suffered much the same fate when the steel industry collapsed.  Losing nearly 100,000 jobs and a population drop of nearly 13%.  In 2000, Cleveland, OH faced a similar threat.  Utilizing pooled resources that included non-profit, private and civic organizations each city has now emerged as employment meccas in the field of healthcare and research.  

Detroit bankruptcy affords the city protection from its creditors and time to restructure itself.  The comprehensive plan sets forth a vision for economic resurgence by city officials, addressing each economic hiccup with sound management and business practices.  

Following the example of Pittsburgh and Cleveland, the city has quickly formed a network of university, government, community and non-profit organizations working together to address specific economic challenges. With help from large investment firms, government aid and a slew of  public, private, local non-profit organizations and city leadership Detroit is diversifying into areas of technology, science and the arts to add to the its advanced manufacturing industries.

North Dakota Developments

Detroit is typical of many mid-west cities that have grown with extremely large suburban areas; when the population was rising due to the car boom / Motown era, this was great for quality of life as affordable and plentiful land meant yards and gardens for all and cheap property prices.

Fast forward a few decades and this large urban sprawl and low population density is fast becoming Detroit’s downfall as the dwindling population, and therefore city tax coffers, are insufficient to cover the large cost of transportation, education, utilities and other essential infrastructure over such a wide area.

The result? A city that cannot meet its financial obligations and therefore has to declare bankruptcy and whilst other US cities have been also declared bankrupt, Detroit is by far the largest city to do so.

As the first UK company to offer property in Detroit 5 years ago, Property Horizons withdrew from the market 2 years ago when prices rose artificially on speculation by bargain hunters thinking that things could not get any worse, and against all odds and multibillion bailouts by the Obama administration, it seems it has.

So is Detroit’s fate a portent of things to come for other parts of the USA?

In a word, no, and if you look at states such as North Dakota, in particularly the western part such as Watford and Williston, things could not be further from what is happening in Detroit.

With the largest oil boom due to ingenious and novel fracking technology, North Dakota is leading the way to providing the US with its ultimate goal; energy independence. Take for example for prices, a brick 3 bed house in a decent part of Detroit would set you back anything from $10,000 to $40,000, in Williston, the similar sizes house would set you back anything from $350,000 – $400,000, and it would be made out of vinyl, not brick!  Price for property in some areas appreciated by 97% according to official figures in 2012.

In short, anyone who has or is looking to invest in Detroit should consider why they are investing, if it’s for yield, long term capital appreciation, they should seriously consider North Dakota, as they would most likely find this a more lucrative and far less risky and more stable opportunity.

At the next Property Investor Show you will find many more companies presenting opportunities to invest in different states of USA, to view the current list click here. If you haven’t already then do register to get your tickets for the next Property Investor Show – you can get your free tickets from this link.

If you are business who sells properties in USA and will be interested in exhibiting or advertising at the next Property Investor Show feel free to contact us via enquiries@propertyinvestor.co.uk and quote the word Blog.