Recently wrote a nine-part series looking at the situation in Detroit (link below). It’s no secret that the city’s going through some rough times, but the doomsday stories conjured up by the press are misleading. As we demonstrated (citing many sources along the way) Detroit is very much on the road to recovery. Right now, investors are snapping up bargain properties and house prices are starting to rise. But, in a recent interview, one analyst from property valuation website, Trulia, believes now is a bad time to buy. Here’s why we disagree…
What Trulia thinks...
The basic premise of Trulia’s argument is that there’s not enough growth in Detroit’s economy (in terms of jobs and property development) to justify investing in buy-to-let property there. The Trulia employee cited that vacancy rates were as high as 30%, and because house prices are so low, people can afford to buy easily as it works out cheaper for them in the long run.
He stated that Detroit’s housing market was “one of the most challenged in the US”. He also stated that property construction work sits at “around one third” of the rest of the US, and that in the last 12 months, there have been many job losses, not employment growth.
Well, of course the property market is “challenged” - the city had to file for municipal bankruptcy! The same goes for job losses that were cited from the last 12 months. Of course the indicators won’t be good if you look at the past 12 months.
He believes that house prices in Detroit have increased 20%, year after year, because of investor interest. That may be true. But investors don’t seem to share the Trulia economist’s negative outlook. They’re investing because of what’s happeing right now and what’s going to happen in Detroit’s future, not in the lagging indicators of the last 12 months. Let’s take a moment to consider these points.
Are vacancy rates really 30%?
Yes. But. Only in the most run down neighborhoods in the city. And, as you'd expect, investors are largely avoiding these neighborhoods. Data, such as vacancy rates, are easy to obtain in the US. They’re available as a matter of public record which is ideal for investors. Trulia’s analyst failed to point out that while some very shady neighborhoods sit at 30%, many neighborhoods have a much lower rate around 5%. As you can see from the recent case study we did, one client of ours is making money on one such a property right now. Since he bought, it’s significantly appreciated in value and he's had no trouble finding tenants.
Business and employment growth
Well, this is simply not the case. So much so, we were quite surprised anyone seemed to think otherwise. Over at CBS Detroit, there are some solid numbers to back this up. For starters, online job postings have doubled recently, going from just under 73,000 right up to 140,000 positions. Where do you think all of these jobs are coming from? That’s right, the high-tech businesses moving into the city that we discussed here (with sources).
In another story, Detroit is leading the way for renewable energy sources. The city is likely to benefit from the several Michigan colleges nearby now giving job training in renewable energy positions. The 2013 Michigan CEO Summit showed massive growth across the board, announcing that Detroit demonstrated per capita GDP, per capita income, and employment growth well above the national average, with employment growth as much as three times more than the top-performing US states. Does this economy sound like it's not growing?
A vested interest…
Trulia is really just trying to get a little media attention. No one wants to go on the news saying everyone should invest only to have it backfire on them and end up with all kinds of problems on their hands. There’s nothing wrong with that.
But investors have to be careful where they get their information and decide whether or not their sources have a vested interest in spinning the truth. As we said before, Donald Trump and Warren Buffett both agree that Detroit’s a great investment right now. And we've shown that we do too. It's up to you to analyse the data and make your own calls. Investment professionals look at the bigger picture and the long view. They decide whether or not the risk is worth the reward, which is why investors the world over see Detroit for what it is. And that’s one hell of an opportunity. mmackay
Recently wrote a nine-part series looking at the situation in Detroit (link below). It’s no secret that the city’s going through some rough times, but the doomsday stories conjured up by the press are misleading. As we demonstrated (citing many sources along the way) Detroit is very much on the road to recovery. Right now, investors are snapping up bargain properties and house prices are starting to rise. But, in a recent interview, one analyst from property valuation website, Trulia, believes now is a bad time to buy. Here’s why we disagree…
What Trulia thinks...
The basic premise of Trulia’s argument is that there’s not enough growth in Detroit’s economy (in terms of jobs and property development) to justify investing in buy-to-let property there. The Trulia employee cited that vacancy rates were as high as 30%, and because house prices are so low, people can afford to buy easily as it works out cheaper for them in the long run.
He stated that Detroit’s housing market was “one of the most challenged in the US”. He also stated that property construction work sits at “around one third” of the rest of the US, and that in the last 12 months, there have been many job losses, not employment growth.
Well, of course the property market is “challenged” - the city had to file for municipal bankruptcy! The same goes for job losses that were cited from the last 12 months. Of course the indicators won’t be good if you look at the past 12 months.
He believes that house prices in Detroit have increased 20%, year after year, because of investor interest. That may be true. But investors don’t seem to share the Trulia economist’s negative outlook. They’re investing because of what’s happeing right now and what’s going to happen in Detroit’s future, not in the lagging indicators of the last 12 months. Let’s take a moment to consider these points.
Are vacancy rates really 30%?
Yes. But. Only in the most run down neighborhoods in the city. And, as you'd expect, investors are largely avoiding these neighborhoods. Data, such as vacancy rates, are easy to obtain in the US. They’re available as a matter of public record which is ideal for investors. Trulia’s analyst failed to point out that while some very shady neighborhoods sit at 30%, many neighborhoods have a much lower rate around 5%. As you can see from the recent case study we did, one client of ours is making money on one such a property right now. Since he bought, it’s significantly appreciated in value and he's had no trouble finding tenants.
Business and employment growth
Well, this is simply not the case. So much so, we were quite surprised anyone seemed to think otherwise. Over at CBS Detroit, there are some solid numbers to back this up. For starters, online job postings have doubled recently, going from just under 73,000 right up to 140,000 positions. Where do you think all of these jobs are coming from? That’s right, the high-tech businesses moving into the city that we discussed here (with sources).
In another story, Detroit is leading the way for renewable energy sources. The city is likely to benefit from the several Michigan colleges nearby now giving job training in renewable energy positions. The 2013 Michigan CEO Summit showed massive growth across the board, announcing that Detroit demonstrated per capita GDP, per capita income, and employment growth well above the national average, with employment growth as much as three times more than the top-performing US states. Does this economy sound like it's not growing?
A vested interest…
Trulia is really just trying to get a little media attention. No one wants to go on the news saying everyone should invest only to have it backfire on them and end up with all kinds of problems on their hands. There’s nothing wrong with that.
But investors have to be careful where they get their information and decide whether or not their sources have a vested interest in spinning the truth. As we said before, Donald Trump and Warren Buffett both agree that Detroit’s a great investment right now. And we've shown that we do too. It's up to you to analyse the data and make your own calls. Investment professionals look at the bigger picture and the long view. They decide whether or not the risk is worth the reward, which is why investors the world over see Detroit for what it is. And that’s one hell of an opportunity. mmackay