When talking with other real estate investors I’m often asked for recommendations for property management companies in Detroit.
How I wish I could easily answer this question!
The reality is, there are no great property managers operating in the Detroit market today. At least none that I know.
And it’s a big reason why I continue to self-manage my properties even though I live thousands of miles away.
Just because Detroit property managers aren’t great doesn’t mean you can’t find one that works for you. You just have to know what you’re getting into and ask some probing questions.
You may also have to be a little more hands on and manage your property manager more than in other markets.
But let’s dive into why exactly property managers in Detroit are notoriously bad so we can better understand how to handle them.
Property Management Companies in Detroit Have It Tough
As much as I loathe property management companies in Detroit, I do empathize with them.
Property management in general is a tough, low-margin business. In Detroit, it’s even tougher.
Let’s look at some of the specific challenges Detroit property managers face.
Lower Rents Mean Less Revenue
Rents in Detroit are on the lower end. According to Zillow, the median rent in Detroit today is $1,200:
Meanwhile, the median rent for the US is about 70% higher at $2,030.
Property management is an economies of scale game. While some might think it’s about how many doors a company has under management, that’s really only one part of the puzzle.
Property Managers Need To Focus On Gross Rent Value
For a property manager they also need to focus on the total gross rent value (GRV) that they manage.
Since property managers are paid a percentage of rents, the higher the gross rent value of their managed portfolio, the more money they make.
But GRV alone is a vanity metric. We also need to consider how many doors they manage.
If a property management company manages 500 doors, that sounds impressive.
But if they’re monthly GRV is $600,000 it’s far less impressive than a property manager that has 300 doors with the same monthly GRV.
If the number of doors under management is our only benchmark we’d be none the wiser.
This is exactly the battle property management companies in Detroit face compared to the rest of the country. They must manage far more doors than the average property manager to make the same amount of money!
As you can see in the above graphic, a Detroit property manager will require nearly twice as many employees to do the exact same job.
Talk about slim margins getting even leaner!
Some of this can be made up for with higher fees. Typically, Detroit property managers charge the first month’s rent as a tenant placement fee, 10% of gross rents thereafter, and usually some sort of lease renewal fee.
In many other markets you might see 50% of first month’s rent for tenant placement and perhaps 8% of gross rents.
Still, these higher fees don’t make up for the operational shortfall. The reality is margins are smaller for Detroit property managers.
Seeing as it’s just not a great business to be in, you ultimately aren’t attracting great business people. And the property management operations tend to reflect that.
Property Management Companies in Detroit Deal With Lower Income Tenants
Beyond low rents, Detroit property managers, by definition, are operating in a low-income area.
Detroit’s median household income is currently $34,762 according to the US Census Bureau.
That’s about 50% of the $69,021 median household income in the US.
Unfortunately, costs don’t always scale linearly. Recall that median rent in Detroit is $1,200 while the US is $2,030.
If rents scaled linearly with income you’d expect the median rent in Detroit to be $1,015.
Instead, it’s $185 more, or 18% higher, than it “should” be.
As someone who relocated to the Metro Detroit area for five years I can tell you that prices aren’t as cheap as you’d expect.
For example, gasoline is pretty much in line with the national average.
Groceries aren’t much cheaper either.
My favorite grocery store is Trader Joe’s. I specifically recall being excited to see how much cheaper the prices would be in a Detroit area TJ’s than a California one.
Spoiler… they were identical!
Detroit Tenants Have A Harder Time Making Ends Meet
What’s it all mean?
Lower income rates are fine as long as prices adjust to match. But when they don’t, it’s harder to make ends meet.
This means more late rent payments and ultimately more evictions.
Detroit property managers will spend more time and resources on this than the average property manager in the US.
That’s just a fact.
I have personally only had to do one tenant eviction in my five years of investing in Detroit. And even that instance had some oddities to it.
But still, my track record isn’t long and my sample size of 12-doors is relatively small.
Property managers are dealing with hundreds of doors, and they are certainly dealing with these challenges on a monthly basis.
And if this all isn’t enough, there’s another big issue property management companies in Detroit are constantly dealing with.
Challenges of Older Housing Stock & Infrastructure
Much of Detroit’s housing infrastructure is old.
Yes, there are plenty of awesome new developments happening in Detroit. But much of the single family housing and smaller multi-family housing in Detroit (the stuff that makes great rentals) are older.
For instance, some of my houses are nearly 100 years old!
Granted, I’ve done a lot of updating to my homes and I generally don’t have problems as a result.
But not every investors wants to spend the money upfront to improve items like plumbing and electrical.
The result?
Headaches.
Ask any Detroit property manager what their number one service call is and they’ll probably cite plumbing issues.
I generally recommend people go in and update the plumbing if it hasn’t been done already. A standard rental home in Detroit is the 3 bedroom, 1 bathroom bungalow.
These homes are generally 900 – 1,100 square feet with two bedrooms and the bathroom on the main level. The attic was converted to a bedroom at some point in the past.
They look like this:
These houses also have a basement.
So what?
Seeing as these homes are so basic, it is extremely easy and affordable to update the plumbing.
Everything is easily accessible from the basement and cutting out the old to replace with PEX is really not at all expensive!
So if you’re buying a rental in Detroit, understand you’ll be doing yourself and your property manager a favor by addressing some of these problematic areas upfront.
The Future For Detroit Property Managers
I don’t believe property management companies in Detroit are intentionally evil.
Again, I empathize with their situation and the unique challenges they face.
And I do believe things will get better. Heck, they already have!
There are a lot of reasons to be optimistic that Detroit property managers will become increasingly better.
Detroit Rents Are Moving Higher
Although rents are lower than the national average, they have been moving higher.
When I started investing in Detroit in 2019 my average rents were in the $800 – $900/month range.
Today those same houses are rented for $1,200/mo. One of my homes, a nicely renovated 3 bed/1 bath is rented for $1,700/month.
Higher rents mean Detroit property managers’ margins will improve. Hopefully their level of service improves along with it.
Detroit Incomes Are Also Moving Higher
Median income in Detroit is low but it’s on the rise!
You have to wonder… is there any better measure of an area’s progress than median income?
Clearly, it was stagnating/deteriorating in Detroit up until 2015:
And I am absolutely certain that this trend will continue.
How do I know?
Unions are striking like crazy! The UAW is in the middle of a strike right now and Detroit casino workers just walked off the job.
Those are just the recent ones.
It’s hard to keep track of all the labor strikes in Detroit these days, but this article does a good job of summarizing them.
The reality is these strikes will resolve. And they will result in higher wages.
Ultimately, for us as investors (and for property managers), this is a good thing. It should help people better afford their daily necessities and result in a lower frequency of late rent and evictions.
Detroit Is No Longer A Slumlord City
For decades Detroit has been a nearly unprofitable market for investors. The tenant base was terrible and you could only turn a profit by doing the absolute bare minimum as a landlord.
You essentially needed to be a slumlord to make a profit in Detroit.
That’s changed a LOT!
More investors are rehabbing properties properly like never before. As they do, they update larger items like electrical, plumbing, and roofs.
The idea here is this results in fewer service calls for property managers which frees up more time and resources for running a better business.
Overall, I remain optimistic and excited about Detroit’s future and the hopes that property management companies in Detroit will continue to improve.