The Motor City may offer single family rental (SFR) investors the best of all possible worlds in 2018. If you know how to gain the upper hand in the housing market that is. According to Corey Hanker, managing partner at Fortus Partners, these days, “It’s investor advantage in Detroit!” Hanker, who spoke on a panel at the 6th Annual IMN SFR Forum (West) in Scottsdale, Arizona, on December 5, 2017, said, “Although the pendulum will shift in the other direction [at some point],” investors who are prepared to exit their SFR investments by selling to former tenants may be ideally situated for high returns in the city for years to come.
According to Hanker, there are three important things to note about investing in the Detroit market and the greater metro area:
1| Cash is Still King for Investing in Detroit
Hanker reported that in the Detroit market, “Everything is cash. It takes the advantage and puts it in the investors’ hands,” he said. Over the course of 2017, the mortgage lending market in Detroit has tightened, making it very difficult for buyers to purchase homes using conventional financing. As a result, in many cases, SFR investors buying with cash are still able to buy below market value even though inventory in the area is tight.
2| Renters’ Credit Scores are Rising
Hanker noted that in his company’s experience, tenants’ credit scores on rental applications are rising. “We are looking at scores in the neighborhood of 625 to 635,” he said. Rising credit scores are a good indicator for SFR investors hoping to retain tenants long-term because those tenants tend to pay in a timely fashion and may remain in place for longer periods of time.
3| The Millennial Population is Growing
Lastly, Hanker said there is an ongoing “Millennial movement” into the Detroit area, something he credited largely to Quicken Founder Dan Gilbert’s initiatives in the area. “There are more than 100,000 students within 25 miles of Detroit now, and they are bringing in their wealth and skills and staying to build up the local talent pool,” he noted, adding that this type of population growth is good for local economies in commuter suburbs as well.
Hanker warned that the current market situation in Detroit will evolve in the next 12 months, with more and more investors – both individual and institutional – becoming more active in the area. Real estate investors who currently own SFR portfolios in Detroit can plan for shifting renter and resident preferences in the coming months by exploring their options for eventually exiting the properties by selling them to occupants using creative methods or upgrading rentals over time in order to charge premium rents to long-term Millennial tenants.
The IMN 6th Annual SFR Investment Forum (West) is happening right now in Scottsdale, Arizona. Check back for more exclusive Think Realty coverage of this influential industry event.
Find an in depth look at the Detroit market in the December issue of Think Realty Magazine.