Why Michigan is Still a Solid Investment Choice
It Offers Strong Cashflow, Respectable Appreciation, Landlord Friendly Governance, A Diversified Economy, An Educated Workforce, and Abundant Natural Resources
“There’s always opportunity in real estate. It’s just a matter of finding that opportunity in the current market.”
6 Reasons why you Should Consider Michigan for your Next Investment
If I did not have markets to invest in within an hour's drive of my house, or even within my state, I would be looking for a location to invest but concerned about making the right choice. While certainly there are many places that have positive indicators for real estate investing today and maybe more going for it as an investment market, I feel I should make the case for Michigan to be considered for your next investment.
I would want to see the following in any market I considered for investing:
Strong Cashflow- yes you can still buy cash flowing property in Michigan.
Respectable Appreciation- while not every community has had double digit appreciation lately, appreciation has been respectable across the state.
Landlord Friendly Governance- property rights are respected and Midwest practicality leads to a balanced approach to how landlords and tenants are treated with an understanding and appreciation for the housing that investors provide and the need for more rental units in every community.
Diversified Economy- Yes Michigan is home to Detroit and the auto industry but also many other industries that provide food, medicine, products and services and with a labor shortage like everywhere else presently.
Educated Workforce- I am probably biased being from Ann Arbor where the barista is working on their Ph.D but it is fair to say Michigan does have a solid, educated workforce in the trades and professional services.
Abundant Natural Resources- While some places, unfortunately, are concerned about water, Michigan has lakes so big you cannot see land when you cross them. The climate is temperate with the benefit of all four seasons. Animal attacks are mostly unheard of so you can enjoy the many national and state parks, nature in general, and swim in the water without much concern. In fact, deer run around like dogs and are probably the biggest wildlife threat while driving. As a result of all of this, the tourism industry is robust which makes for markets for short term rentals as well.
I know you are supposed to have an odd number of items listed when writing but I think all six market indicators are worthy of inclusion in the analysis and making the case for Michigan.
Strong Cashflow
Investors can find strong cashflow in nearly all real estate categories from multi-unit, to self storage, to single family rentals to mobile home and RV parks.
Rents have increased while the acquisition costs compared to other locations nationally are lower which makes cashflow stronger.
For example, I am helping an investor buy a duplex in a very investor friendly market with a strong local economy that is not a war zone for $80,000. Both units together will rent for $1,600 a month conservatively. The garage can be rented for another $100 a month. So, let’s say a monthly income of $1,700. This investor is using a DSCR loan with interest rates above 7% for a fixed rate 30 year loan to be conservative. There are ARM options and interest only options to make this deal even better until interest rates lower but we are being conservative in the numbers to make a point. The all in payment with Principal Interest Taxes and Insurance is $700 a month—$700 dollars a month. We use an established property management company in the area that charges 11-12% of gross rents because they are high touch and manage the property for tenant retention so let’s say $200 a month for property management. The positive cashflow on this one property alone is $800 a month. $800 a month covers a lot of maintenance and vacancy loss as well as lifestyle for the investor.
With 20% down, the initial investment is not nearly as much as other areas in the country and in a short time the investor can pull out equity and go shopping again.
How many of these rentals do you need to have for your balance sheet to be healthy, change your life, and also provide affordable housing for others.
Respectable Appreciation
According to Redfin, home prices in Michigan in June 2022 on average were up 9.9% from this time last year. Redfin also states that Detroit saw an average appreciation of 32.3% from June of last year to June of 2022. Other Michigan cities like Grand Rapids saw a 10% average appreciation for June 2022 from this time last year. Finally, my hometown of Ann Arbor saw an average price appreciation of 7% from June of last year to June of 2022 according to Redfin.
Landlord Friendly Governance
Most communities in Michigan take a balanced approach between the rights and needs of landlords and tenants. They understand more housing and more affordable housing is needed in every community so why vilify landlords and investors. Additionally, property taxes are reasonable in most communities in Michigan compared to other places and current Michigan law caps property tax increases to a maximum of 5% which we are now just starting to hear be a real benefit with inflation as high as it is.
Diversified Economy
Yes we have the auto industry hub of the country but also tech startups, established tech companies, pharmaceutical companies, food producers and a strong manufacturing, service and tourism economy. I probably forgot all of the categories of businesses like utilities and excellent higher educational instructions but the point is if there is a category of business or service Michigan probably has it at a world class level. They are even talking about having an active space launching program on the shores of Michigan. Go Michigan!
Educated Workforce
Michigan has an educated and diverse workforce from the trades to professional services. We have fine higher education institutions and affordable community college programs. Families are proud of their public schools in Michigan and as a Realtor I see the demand for good schools being sought after and met by their community schools.
“How many of these rentals do you need to have for your balance sheet to be healthy, change your life, and also provide affordable housing for others.”
Abundant Natural Resources
Probably one of the biggest strengths Michigan has as a state is its abundant natural resources. In fact, local utility companies are able to generate energy from minerals, wind, solar and water. We are a large producer of food with productive farmland (another excellent real estate investment locally). Michigan also has forests, water, dunes, and abundant wildlife. All of this makes Michigan a desirable place to live, visit and invest.
Consider Michigan for Your Next Investment
While certainly there are many beautiful and outstanding places to invest in the country, I think Michigan should be considered for your next real estate investment. You can still buy strong cash flowing properties. Appreciation in rents and property value have been reasonable historically and more so recently but still affordable. All communities in Michigan need more housing and affordable housing and are fair with landlords and cap the rate at which property taxes can be increased annually. The economy in Michigan is diverse and no longer just home to the Motor City. The education institutions in Michigan are world class and produce an educated workforce in a variety of fields. Finally, Michigan has an abundance of natural resources being home to all five Great Lakes. So, if strong cash flowing properties are rare near you, consider Michigan for your next real estate investment.
To your success!
Arbor Advising has a passion for helping people buy, sell and invest in real estate. We believe real estate is the best way to create passive income, grow your wealth and provide inflation adjusted returns in retirement with fantastic tax benefits.
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Disclaimer:
Always speak to your CPA, investment advisor and attorney before making any investment decisions. Past performance does not guarantee future returns. Arbor Advising seeks to educate and does not endorse any specific product, service or investment.
