Right off the bat, let’s clarify something: navigating Detroit’s marketplace can be incredibly perplexing for those unfamiliar with it. I’ve actually seen more times than not investors who are not familiar with that market fall into the trap of analyzing “comps” in an area based on zip codes as opposed to focusing on specific blocks within specific subdivisions.
Did I lose you yet? Well, I cannot stress this enough, there is a difference between appraised values and resale values in the city of Detroit. Because Detroit is such a block-by-block marketplace, values and areas shift quickly and radically block-by-block. Unlike traditional marketplaces, when you are looking at comps from a traditional appraisal method of sales in the previous 6 months in a one block mile radius, you could often fetch higher values on paper than what your property might actually sell for. You cannot approach Detroit in the same way you would approach a market like Jackson Heights, New York, for example.
Let’s take the zip code 48224 for example. If you buy in close proximity to Morningside, there is a chance when running comps you could fetch comps with extremely high values because an appraiser is considering the whole mile radius, and Morningside or east English village may fall in that mile radius. So your 3 bedroom 1 bathroom bungalow that you bought in Moross-Morang could potentially fetch a substantially high appraisal value. Now anyone that is local knows, you cannot compare Moross-Morang to Morningside. But, if you are looking at this from out of state, you might get excited and think you’ve stumbled across gold. You might even consider that you could buy a property to fix and flip it due to the high comps you are seeing in this POSTAL CODE, but the reality is, you can’t.
Appraised values and resale values in Detroit are quite simply not one and the same. Tread lightly, and make sure you know what you are buying before you buy it. So the question becomes, how do you identify what the actual resale value of your property is in the city of Detroit?
Focus on Subdivisions vs Postal Codes
Focus on specific subdivisions as opposed to looking at zip codes when analyzing values. Detroit is more molded towards subdivisions as opposed to zip codes. In a zip code, there are strong subdivisions and weaker subdivisions. Let’s take 48205 as an example. 48205 is a notorious zip code in the city of Detroit, and many investors shy away from investing here due to the harsh reputation it has. But, even in this zip code, there are strong subdivisions. Take the Mohican region for example. This subdivision happens to be in 48205. Looking at the zip code from afar, you could actually end up missing out on a great opportunity to invest in a strong subdivision like the Mohican region. In short, it is best to focus on subdivisions when trying to identify comparables instead of looking at zip codes.
Break Down Strong Blocks Within That Subdivision
It’s important to ensure that you check out the whole subdivision as keeping in line with the block-by-block atmosphere of Detroit. Even strong subdivisions can have weak blocks. Morningside, for example, has a few rougher blocks. and of course. the closer you go south, towards Grosse Pointe, the hotter it can get. Same thing with Marygrove Fitzgerald. There are strong blocks and rough blocks. It is not that hard to identify, and just takes analyzing where most of the higher comps selling in the subdivision are located, along with actually taking the time to drive by the comps you are using, which leads me to my next point.
Scope the Block
Whether it is you or a trusted boots on the ground, make sure you are actually driving the block you are about to invest in. See how the block is being maintained. Is it up to par with the other blocks you are pulling comps from?
Similar Characteristics
Similar characteristics ensure you’re actually pulling comps that align with the subject properties characteristics. If you are buying a 3 Bedroom, 1 Bathroom 1200 Sq Ft bungalow, make sure you are actually finding properties that are similar in bedroom count, sq ft, and bathroom count.
As Close as You Can Get
Identify as many recent sales as you can on the block you are buying on and one to two blocks over. The closer you can get, the more you can ensure resale value. Narrow your search down to as many properties as you can in close proximity to the one you’re purchasing.
Rehab Matters
Make sure you are checking out the properties you are using as comparables and the types of renovations they have done to the property. For both resale and appraisal values, this will matter. You cannot compare a property that is done up with higher-end finishes to rental-grade finishes. It’s important to verify this.
Scope the Surrounding Areas, Suburban Cities, and Subdivisions
When it comes to resale values, you also might want to look around at what is around the subdivision you are about to invest in. Let’s take another look at the Morningside subdivision, what drove the values up in this area and what is moving people towards this area? Similar to the East English village subdivision, the close proximity to Grosse Pointe made these two subdivisions appealing to residents that wanted to live in Grosse Pointe but were priced out of the market. People realized that a few blocks over past Mack Ave you can go into the Detroit side of things and buy properties at ⅓ of the price of Grosse Pointe. So, this drove residents to consider these subdivisions as viable options. When you’re able to identify what is driving residents this way and demand, you’ll be able to have more faith and confidence in the comps you are seeing.
Work With Professionals That Have a Good Understanding of the Market
This goes without saying, but you must work with professionals that actually understand the Detroit marketplace. Using out-of-state turnkey providers or brokers who focus on suburbs in metro Detroit might not be the best option when trying to understand actual values in the marketplace. Ensure who you are working with when buying a property has a tight and strong grip on values in the marketplace along with a strong sales history. Of course, there are some investors that have no intention of selling their properties for a long time to come and are more interested in appraised values due to the appealing option of doing a refinance on their current property. In that regard, you should be able to identify comps by using a more traditional approach. In conclusion, the Detroit real estate market is a dynamic landscape with countless nuances to navigate. If you’re seeking expert guidance and support in your investment journey, look no further than Upside Investments. Our team is dedicated to helping you unlock the full potential of Detroit’s opportunities. Reach out today and let’s embark on your path to success together.
