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Brits in Motown

U.K. Investors Target Detroit's Troubled Housing Market

By Kevin Brass
Editor

Searching the globe for investment opportunities, London-based Experience International settled on, of all places, Detroit, the U.S. poster child for tough economic times. More than 25 percent of the work force is unemployed in the Motor City, the murder rate is among the highest in the country and the median price of a home sank to somewhere around $18,000 in the last year.

“When Detroit was first presented to me, my first reaction was, ‘no thanks,’” said Stuart Johnson, project sourcing manager for the investment firm, which is also working on projects in the French Alps, Brazil and Panama. “We’d heard all the bad stories about Detroit.”

But Detroit, Johnson soon decided, offers a unique investment opportunity. Experience International is participating in a program to buy and renovate homes for the rental market, usually paying about $45,000 to buy and spruce up a property, which typically generates $800 to $900 a month in rent.

So far Experience’s clients have purchased 10 homes, with plans to buy 30 more by June. There are certainly plenty of houses available—almost 16,000 houses in Detroit faced foreclosure filings in November, according RealtyTrac.

“What’s important is picking streets where people are moving into,” Johnson said. “A lot of what is being pushed out in the market in the U.K. are cheap houses on streets where every fourth house is boarded.”

In many neighborhoods, a $45,000 investment will buy a refurbished three-bedroom house, free of all liens. Once fixed up, the houses are usually eligible for the U.S. Department of Housing and Urban Development’s Section 8 voucher program, which subsidies rent for struggling families.

A typical house

“This is not a get rich quick scheme,” said Mark Demby, partner in Nuevo Skye, a U.K.-based company coordinating purchases in Detroit for investors like Experience International.

The potential for steady yields in the 10 to 15 percent range is attracting the attention of investors from around the world, Demby says. Nuevo Skye is working with clients from Australia, Singapore, Mexico, Switzerland and Thailand, in addition to the U.K.

“Detroit is an investor’s dream, despite what you might read,” Demby said.

Lana Vacha, director of the Department of Housing and Urban Development’s Detroit field office, says she has been “personally contacted by investors from various part of the world,” asking about local housing programs.

“They say they are in it for the long haul and they believe in the market for the long haul,” Vacha said.

Nuevo Skye has purchased 250 homes so far and hopes to hit 600 in the next year. The company might pay anywhere from $5,000 to $35,000 a home, before renovations, which can range from minor to extensive.

“The big thing is Detroit has good quality, brick-built properties,” Demby said. Although unemployment remains high and many neighborhoods have fallen into blight, Demby says Detroit is still a “working city” with a large blue-collar contingent fueling the rental market.

Many renters are in a lease-to-own plan, but Nuevo Skye doesn’t promise investors an exit strategy; it’s not a flip investment, Demby emphasized. “We’re selling on long term yield,” he said.

In recent months, the Detroit market has shown signs of life. The number of sales and the median price for the Metro area jumped more than 20 percent in November from a year earlier.

For Experience International, Detroit fits in a portfolio that includes apartments in Madeira, ski lodges on France and beach condos in Brazil.

“What we’re finding is there is incredible interest in the United States

Experience is also exploring deals in Florida, but it’s a different type of play, Johnson said. With so many rentals available, buyers are typically looking to hold and resell a property in a few years when the market improves, more than rental yields, he says.

“It’s all about the numbers,” he says.

Experience is steering away from emerging markets. “We’re shifting to safe havens,” Johnson said. “The word for clients is good yields, but also security.”

Speculative plays are falling off the radar.

“For the time being, the wild market stampede to get the next rising market is a thing of the past,” he said.

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