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Wednesday, July 01 2015

Many of you know that I've been working in the Detroit real estate market for the past few years.  I even gave up working in Atlanta in favor of the Detroit market.  I, like many other investors, got caught up in the hoopla surrounding the possibilities of a once-great city that had since turned to rubble.  I was sucked into the idea that we could turn this city back into something great.

Except...there was one big problem that I knew about but refused to acknowledge until just last week.

Without people, you can't possibly have a real estate market no matter which way you slice it.

Could I be the ONLY one out of the many millionaires and billionaires haphazardly throwing money into Detroit real estate to understand this basic concept?

My biggest complaint and offer of a solution (which I had hoped would have manifested by now) was that there needed to be a giant of a company that would come in and employ at least 200,000 people.  This could have been (in my imagination, apparently) a huge Walmart distribution hub, an Amazon shipping distribution center, Boeing, or a combo of two or more of these sizable types of companies.

After all, a CEO of any large company seeking to expand into an area where they could get cheap real estate and endless amounts of willing workers could (or should) clearly see that Detroit is a kick-ass option.  They could pick up a warehouse that would take up 4 city blocks for pennies on the dollar.  They would be centrally located in the USA for perfect distribution placement.

So...what the f*** happened??  Where are these conglomerate companies and why didn't the set up shop in Detroit?

Well, I'm still hoping but I've since given up on the possibility due to some recent things I've come to understand and discover.

Detroit is a big union town, still remnant of the days of Jimmy Hoffa.  And nobody setting up shop wants to deal with union rules and regulations.  In fact, there have been a slew of companies who have picked up and left Detroit because they no longer could afford to pay $48 an hour to someone smoking cigarettes on the clock when they could go elsewhere and pay minimum wage for the same job title.

Don't believe me?

In 1950 there were just under 300,000 manufacturing jobs.  Right now there is less than 27,000 manufacturing jobs.  Between 2000 and 2010, just under 50% of the manufacturing jobs were lost in Michigan.  Of course, Asia has taken over manufacturing because it's much more affordable to make things where there isn't the hardcore and stringent rules to have to follow to keep a company running...including paying someone a high hourly wage due to union requirements.

Union or not, Detroit isn't a palatable place to set up a business anyway.  Even though in the 1960s Detroit used to have the highest income per capita in the entire nation (yes, that's a fact!), the state of their economy has fallen apart so far and so fast that it would take a huge insurmountable effort to get it back on track.

Crime is out of control and it's never going to get better considering that about half of Detroit's residents are functionally illiterate (and doesn't make for a good work force). (You kind of have to know how to read and write to be able to work somewhere.)  This forces people into "extracurricular" activities to pay the rent and feed themselves (i.e. crime).  Between this and the police force being cut by 40%, it's impossible to get a grip on the crime without the right amount of Detroit's finest being in place.

And I don't know about you but hanging out in a city that has 11 times the murder rate -- over that of New York City -- doesn't hold high on my list of places to go anymore.

Then they went bankrupt.  Just when I thought it couldn't get any worse.

But can all these millionaires and billionaires be wrong?  After all, billionaire Sir Richard Branson is now investing in Detroit after recently pulling in Virgin Airlines at DTW (Detroit Wayne Metro International Airport).

Yes, I think they're all wrong now.  And here's why...

I was in Michigan last week looking in on some deals (new and old) and it just hit me between the eyes (metaphorically).  The disintegrating destruction that was once reasonably contained within the city of Detroit and in its immediate circumference of the city is now seeping into the suburbs.

Slowly but surely yet steady as an ox.

Last week, I noticed boarded up buildings that didn't exist before.  Abandoned buildings. Broken windows.  Things that didn't exist before in the Detroit suburbs where I'm used to frequenting.

Things that didn't even exist only last year when I was there in the summer.

This is when I knew quite suddenly and with great disappointment...things aren't getting better in the Detroit area as I once wanted to believe.  They are getting worse.  And faster than I thought.

Now...I should mention one thing: the city of Detroit does look like there are improvements.  It's busy during the work week.  Buildings are looking rehabbed and improved.

It looks like a replay of the city of Chicago.  Chicago, once downtrodden, got a make-over. The criminal element was forced out...to the suburbs.  Chicago looks fantastic now.  It's reasonably safe and it's been given new life.  But the suburbs took a beating for it.

Why can't Detroit be the same as Chicago?

Because there aren't any new people coming in.  The population continues to decrease.  It's not increasing.

Sorry millionaires and billionaires who are foolishly throwing money away into Detroit but unless you can somehow suck in a huge influx of a new population, you're not going to be able to do anything with all that real estate you own.  People have to exist to rent apartments to.  People have to exist to start a business to rent office space or a retail storefront.

You kind of have to have people in an area to keep all levels of the localized economy going.  Without this one element that everyone seems to be overlooking, there is no freaking way in hell that Detroit (or any other city) can work.  Period.

Now I may be dead wrong or that Hail Mary may come through at the last minute.  Maybe these movers and shakers really do have something up their sleeves.  Maybe they do have those super large conglomerate companies lined up to move into Detroit to employ hundreds of thousands of people to save the Detroit economy.

But somehow I doubt it otherwise these companies would have moved in already!

Sometimes you roll the dice and you lose.  That's just a fact in life.

The good news is that I haven't lost anything because everything I've done was calculated in such a way that I'm smarter in the way I position myself these days.  But now that I've decided to get out of the greater Detroit area, it's time to find greener pastures elsewhere. (And I've already decided where I'm going next!)

So...a rule of thumb that will now become a "Monica Main Blanket Real Estate Rule That Will ALWAYS Apply At All Times" and that is...if the population size is shrinking, don't invest there because you need people to make real estate investing work.  No people = nobody to rent units to.

See you at the top!

Your mentor,

Monica Main

Posted by: Monica Main AT 10:50 am   |  Permalink   |  Email
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