Detroit: City of champions for property investors?

Detroit, Michigan, USA, is tipped to be the latest hot spot for savvy property investors around the world. With President Obama declaring a particular fondness for Detroit and the US Government pumping billions of dollars into the auto industry, Detroit is definitely a city on the up.

Why, though, is Detroit said to offer a “win-win situation for buy-to-let investors”?

Rod Thomas of Axis Property Investment explains: “The US housing market, in general, remains ideal for investment opportunities. House prices are still low due to foreclosures and rental demand is high. Now, as Detroit enjoys an economic recovery, investors can benefit from Government-subsidised rents, capital growth over time and re-selling back into the local market.”

Axis Property Investment last week hosted a webinar focused solely on Detroit investment. This attracted investors from as far afield as Saudi Arabia and Singapore, as well as from within the UK and in Detroit itself. The webinar promoted two investment strategies for Detroit – robust cash flow (purchase at a low cost, refurbish and rent) and recovery play (capital growth over time).

Rod continues: “Detroit was in a terrible state when our partners first looked at investment opportunities there. However, this worked in our favour because we approached the City and offered to assist with the housing and economic regeneration by bringing in international investment. This led to the City endorsing our product and also offering a significant reduction in taxes for investors.”

One of the major housing factors in Detroit is the Section 8 Federal assistance programme from the US Government. Section 8 was introduced in the 1930s and works the same way today, providing financial support to working families. Typically, this is between 60% and 100% of rental costs.

Employment and the local economy are definitely picking up in Detroit. Auto companies such as Ford and General Motors (GM) are reporting second quarter profits in the $billions. GM’s electric car, the Chevy Volt, is about to go into production for worldwide sales. Chrysler’s Fiat 500 electric car is also planned for 2012.

Approximately 230,000 workers were laid off when the motor industry crashed in Detroit a few years ago. Now, in September 2010, the industry has already taken on around 15,000 new employees so far this year. Reports indicate 10,000 new auto workers will be required, per year, from 2011 to 2013.

US Mortgage collective, Quicken Loans, is creating 4,000 new jobs in Detroit. Plus Marathon Oil Corporation is expanding its refinery and creating 2,000 new positions in the area.

Detroit is also now being cited as a centre of excellence for healthcare. The healthcare sector in Detroit employs 60,000 people, with the St. John’s Hospital employing 15,000 alone. The specialist cancer research and treatment centre, the Barbara Ann Karmanos Institute, cares for more than 6,000 new patients per year and employs around 1,000 permanent staff members.

Detroit is also a major player in the film industry. Already popular as a location destination, Detroit has been a movie hot spot since the Michigan film incentive package was passed in 2008. The package is aimed at attracting motion picture, television and other digital media productions to the area. It provides refundable tax credits of up to 42% (of costs), along with other incentives.

In 2009 alone, parts of 470 movies were filmed in Detroit and a number of 2011 release films are being shot there this year. These include: horror sequel ‘Scream 4’; ‘LOL: laughing Out Loud’ with Demi Moore; ‘Real Steel’ with Hugh Jackman; ‘Machine Gun Preacher’ with Gerard Butler; and ‘The Mechanic’ with Donald Sutherland, to name but a few.

Rod concludes: “One last crucial point of note for Detroit investment is due diligence in the specific area. Some streets may present beautiful properties on one side, but if you pan around to view the other side of the street you could be in for a nasty surprise with burned out, derelict buildings – or worse!”

He adds: “We always conduct due diligence for our investors and only accept and offer properties in good, well-kept, residential areas. But, if an investor is going it alone, we always recommend they visit the area and do the checks themselves.”

More information about investment strategies for Detroit, along with the Detroit video, may be found here: axispropertyinvestment.com/detroit.html