Detroit Property Values Are Rapidly Appreciating

You often hear folks talking about real estate markets in one of two buckets: appreciation markets or cash flow ones.

While these designations are a bit too rigid for me, I do understand the desire to assign categories.

Generally, your personal goals favor one over the other, and most markets do tend to lean more into either appreciation or cash flow. 

For a long time, Detroit has been viewed as a “cash flow” market. But over the last couple years that’s really changed, even if most people don’t realize it yet.

Detroit property values are on the rise.

And I’ve been having private conversations with people for the last twelve months about how Detroit is rapidly becoming an appreciation market.

That’s pretty exciting for those of us invested in Detroit. Afterall, wealth (and cash flow) is built through appreciation. 

So the fact that Detroit is quickly appreciating and will soon be recognized for it is phenomenal.

You may be skeptical that this is happening, but I assure you it is. Let’s take a look.

Detroit Property Values Are Rapidly Appreciating

People are always surprised when I tell them every property I’ve purchased in Detroit has not only generated fantastic cash flow, but they’ve also appreciated 100% – 200% on average.

It’s even more shocking because my first property was purchased just 5 years ago in 2019.

For example, The Dougie Fresh Duplex is worth at least $175,000 today. I paid just $62,000 for it.

The Great Greydale is worth about $120,000 today. I paid $44,000 for it.

I could go on and on, and anecdotal stuff is great but what does the data show?

Turns out, the data supports my personal experience!

Here’s the median list price for Detroit for the last 5 years. This data come from Altos Research:

On August 30th, 2019 the 90-day average median list price was $43,900. Today, it’s $89,900.

That’s more than double!

That’s a phenomenal return, especially considering you’re generating positive cash flow along the way.

But what really sticks out to me here is the consistency of this chart. It’s even more obvious when we compare it to other markets.

Here is the same median list price data over the last five years for Cleveland, Columbus, St Louis, Los Angeles, and Miami:

The only chart that looks similar to Detroit’s in terms of consistent trend is Miami.

But when we compare the returns across all seven markets it’s easy to see Detroit property values are grossly outperforming:

In fact, the Compounded Annual Growth Rate (CAGR) for Detroit property values is a whopping 16.73%!

That massively outperforms the stock market, but when you consider leverage is extremely common in real estate, you realize how strong these returns really are.

With 25% down, you’re looking at a 4x multiple on that 16.73% CAGR.

In other words, you would have more than quadrupled your initial investment in just five years.

That doesn’t include cash flow, mortgage paydown, and tax benefits. 

It’s insane!

What Is Driving Detroit Property Appreciation?

So it’s obvious that Detroit’s property value is rapidly appreciating in price.

This is likely shocking to a lot of folks.

So it’s worth understanding why this is happening.

There are four main drivers that are pushing Detroit’s growth and desirability, most of which I’ve previously written about.

The largest driver is the city’s revitalization efforts.

Much of this initially started downtown. But the city doubled down on these efforts with the Strategic Neighborhood Fund.

The success here is making different neighborhoods increasingly attractive to homeowners. Couple this with extremely affordable housing stock, and people are starting to move into Detroit from the suburbs. 

At some point, paying 3x – 5x more for a house in the suburbs just isn’t worth it.

Detroit has started to hit that tipping point. And we’re seeing that in Detroit’s latest population data.

Finally, Detroit’s job market is far more diverse than it has been in the past. Before, it was heavily reliant on the automotive industry. 

While it is still the automotive capital of the world, there are other large industries in Detroit. Quicken Loans is headquartered downtown, as is Ally Financial and other large corporations. 

There are three casinos in Detroit’s city limits, Healthcare is a massive employer, and the city is working hard to attract new tech companies primarily in the mobility space with the Center For Innovation.

In short, growth is coming from a bunch of different angles with serious momentum. This isn’t just some flash-in-the-pan or dead cat bounce.

Can Detroit’s Appreciation Continue?

So the big question is if it can continue.

And while it’s hard to envision Detroit property values doubling again in the next five years, we have to be objective about it.

For starters, Detroit’s progress and momentum has been gaining steam for over 10 years. 

And it’s gone relatively unnoticed until recently.

What happens as more and more people wake up to the Detroit story? 

It’s also worth considering the base in which we’re starting from.

Detroit Property Values Are Dirt Cheap

Detroit’s median list price is still below $100,000.

With 633,000 people, Detroit is the 26th largest US city.

I’d challenge you to find a city in the US with a population greater than 500,000 people where the median list price isn’t at least $200,000. 

It doesn’t exist. 

Even cities like Baltimore (565,000 people) are 3x more expensive with a median list price of $322,000 today!

Given Detroit’s momentum and cheap price points, I have no issue believing prices have the potential to double in the next five years.

But even if they take 10 years to double, it’s still an incredible return. 

I firmly believe we’ll see the median list price in Detroit increase 2x in the next 5 – 10 years.

Is Detroit Still A Cash Flow Market?

It’s becoming more difficult to find cash flowing deals in Detroit today. 

This isn’t unique to Detroit.

Most markets have seen any bit of cash flow evaporate due to the combination of higher prices, higher rates, and low inventory.

Detroit is no different but there are still cash flowing deals to be found, and that’s exactly what I help folks do every week.

That said, Detroit could be heading down the same path other markets have already experienced. 

If property values in Detroit continue to move aggressively higher, interest rates stay elevated, and rents only move up moderately, we could be in a position where Detroit becomes purely an appreciation market.

This same thing happened in west Cleveland as prices went up quickly and rents failed to keep pace. 

Ultimately, I want Detroit to rapidly appreciate.

It will, eventually, pull rents higher and it will benefit those that are already invested or investing today. 

I also know that true wealth is built through appreciation, not cash flow. So I’m excited to see this next phase of Detroit investing come to fruition.

And when I start seeing signs of full maturation, I’ll likely look for the next highly appreciating market.

But I think we have at least another 5 – 10 years before that happens.