Up until the U.S. housing crash of the 2007-2009 period, investing in cheap real estate was considered a sure way to make a profit since the market had gone up every year over several decades. But what the housing crash taught me as a real estate investor is that there are no guarantees in any market. It also taught me that real estate is tied to several economic factors that need to be taken seriously. One of those factors is unemployment statistics. As I point out in this recent article in the Globe & Mail, If you buy to rent out in a stressed market like Detroit, you have to be aware that those markets have high unemployment rates compared with the national average.
High unemployment usually parallels a situation of increased competition for decent paying jobs. Since corporations and governments are downsizing everywhere you turn, it can mean that when someone loses their job it can affect rent payments. It could lead to renters not paying on time or not paying at all, forcing you to take legal action, which cuts into your investment and takes time away from your other activities. When they vacate the property it can lead to vandalism. If you can’t find a renter, then you’re stuck paying the mortgage, which might be costly from your perspective, especially if the home value continues to drop.
Of course, without jobs, tenants simply cannot pay the rent. They may pay the first month and maybe the second if you are lucky, but ultimately in severely depressed markets like Detroit, the investment is not stable enough to be sustainable. Ultimately, your cheap real estate may end up costing you more in carrying costs in the long run. Just because an investment looks good on paper does not necessarily mean it will work out in the long run.
How to Make Profit in Real Estate
I have concluded that when markets like Detroit are heavily pressured by high unemployment while the city itself has filed bankruptcy, it’s best to consider other markets. Even though prices are super cheap, it does not mean recovery or profit will follow anytime soon. If you don’t mind waiting twenty years to see a return on investment, it may be worth it, but all you’re really investing in when it comes to stressed markets in is stress itself in the near term. It’s better to put your money in places where ROI is more likely.
A trend among Canadian investors is to use the internet to find cheap property in the United States. Coming from Canada, I see this all the time, and believe that investing in cheap homes in Detroit could be unpleasant in the short term. Many Canadians have also found Arizona and Florida opportunities investing in real estate. My favorite city to invest in at the moment is Atlanta because of it’s strong fundamentals. If you would like to learn more about the Atlanta project, Contact Me.