How many homes are vacant in Detroit?
Tuesday, July 27th, 2010 | Landlord Insurance, Vacant Home Insurance
There are a lot of investors looking at Detroit as a great place to buy cheap real estate. The thinking is if you can purchase a home with renovations included for $35,000, you can quickly turn a profit. Most homes in Detroit are brick, beautiful, 2 stories, and usually over 2,000 sqft. As a section 8 property the going rental rate is between $1000-$1400 a month. That is roughly $12,000 a year. In three short years the property would be paid and any future rental income would be 100% profit with the property having a resale value of about 50,000 if rented with a good tenant. Sounds great.
There’s only a couple of problems we even want to address here.
The first is insurance and taxes. With insurance rates ranging from $800-$3,500 a year and property and city taxes costing another $3,600 a year. There is a potential $7,000 a year in additional overhead. That’s not to mention theft, vandalism, arson, and tenants having to be evicted for various reasons.
The second is vacancy. According to Wikipedia, “The 2009 residential lot vacancy in Detroit was 27.8%, up from 10.3% in 2000, with the population continuing to shrink and foreclosures that exacerbate the problem.” So you have to ask yourself, “Who is going to move into my property? Is there anyone out there looking for a place to live?” It’s the classic supply and demand conundrum. Too much supply, too little demand.
Because of the economy, the shrinking and closings of the Big 3 auto and its suppliers, and enormous amounts of vacancies, the city of Detroit struggles to provide services and educational systems that can compete with many suburbs and other metropolises. Vacancies reduce taxable income and increase crime rates which puts an enourmous strain on public services to provide adequate resources. This only leads to more crime and reduced resources available to the communites they serve.
For Detroit to become a competitive city again this blogger believes they have to shrink the city back to its core and build from the middle out. Reduce inventories by eliminating vacant homes on the outlying areas and build from the center. Make it desirable and condensed. Not sure how that plays in politics but it does work for most other major corporations. When income is down, downsize.
As a side not, the deflating real estate values in the city of Detroit have spilled out to the suburbs which has created great investment oppurtunities. Some of the reasons for the rate of vacancy in the city is that more people can afford to move to the suburbs due to the deflated home values and rental rates.
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