Michigan Real Estate Market Indicators – May 2012
Posted by toddbrittingham in Michigan Real Estate Market on May 6, 2012
Report Summary
- US Auto sales for 2011 were up 9.5%
- The unemployment rate in Michigan is continuing its downward trend dropping to 8.5% in March.
- Foreclosures are continuing their downward trend down 36% year over year.
- Home prices are on a downward trend over the short term, but prices are generally flat since 2009.
Foreclosures Down in Michigan…But What About Short Sales
Posted by toddbrittingham in Michigan Real Estate Market on April 21, 2012
We have been tracking the trend in the foreclosure rate in Michigan for some time now because we believe the number of foreclosures has a direct impact on pricing. Over the past 2 years the foreclosure rate has been on a decline falling approximately 50%.
Foreclosures have dominated the real estate market in Michigan for the past several years, but now there is a new trend cropping up – Short Sales. In a report released by RealtyTrac.com short sales are up 33% nationwide, and that trend is even bigger in Michigan. Year-over-year, short sales are up approximately 90% in Michigan with 1493 short sales in January of this year.
Compared to foreclosures, short sales make up a much smaller percentage of the distressed sales in Michigan, but they are trending upward. Banks are starting to realize that selling a property through a short sale is less costly than taking a property back as a foreclosure, so we expect to see this trend continue. Because of this, we are going to start tracking the number of distressed sales made up of both foreclosures and short sales. Overall, distressed sales are down compared to where we were two years ago, but the foreclosure numbers don’t tell the whole story anymore.
Trulia Price Monitor – New Predictor for Home and Rent Prices
Posted by toddbrittingham in Michigan Real Estate Market on April 8, 2012
This week Trulia.com released their Price and Rent Monitor which uses current asking prices as an indicator of housing sales prices and rents. Compared to other major housing indices, Trulia’s new index provides an index with a much shorter lag time. Other indices are delayed by 5-8 weeks which makes it difficult to understand the current market. This is interesting to say the least and we’re definitely going to keep our eyes on this index to see how well it tracks with reality.
For now, let’s take a look at their first report for March 2012.
The report lists the top 100 markets across the U.S. and tracks Year-Over-Year (Y-O-Y) pricing changes for both housing prices and rents. Here is a summary of how Southeast Michigan has fared:
Asking Price Changes – Y-O-Y % Change
- Detroit +4%
- Warren-Troy-Farmington Hills +5.6%
- Detroit 2.2%
- Warren-Troy-Farmington Hills +8.9%
Generally we agree with these trends listed, so we will see how this new index predicts for the future.
Michigan Real Estate Market Metrics Report – March 2012
Posted by toddbrittingham in Michigan Real Estate Market on March 11, 2012
Report Summary
- US Auto sales for 2011 were up 9.5%
- The unemployment rate in Michigan is continuing its downward trend dropping to 9.0% in January.
- Foreclosures are continuing their downward trend down 23.2% year over year.
- Home prices are on a downward trend over the short term, but prices are generally flat since 2009.
Michigan Home Prices Stabilize Over Last 12 Months
Posted by toddbrittingham in Michigan Real Estate Market on February 10, 2012
From the graphic you can see that Michigan is among 11 states in the US that did not see a drop in home prices between December 2011 and December 2012. This matches what we’ve seen in other indicators support the conclusion that the real estate market in Michigan is bottoming.
Data Source: Core Logic Home Price Index – Released February 2, 2012
Detroit is Showing Us it Can Be Done…
Posted by toddbrittingham in Michigan Real Estate Market on February 6, 2012
It seems that Detroit is showing the rest of America how to bounce back. This Chrysler commercial aired during halftime of the Super Bowl and it’s just one more confirmation of what we’ve been talking about for months now. Detroit is on a comeback and the auto industry is leading the way. Listen in as Clint Eastwood gives the rest of America a little inspiration from Detroit…
Don’t Be This Investor…
Posted by toddbrittingham in Michigan Real Estate Market, Rental Property Fundamentals on January 8, 2012
I received an email from an overseas investor today that I really had to shake my head at. He originally contacted me to provide registered agent services for his LLC, and in my response I asked him how the properties he purchased were performing. (To avoid any confusion let me clarify that he did not purchase these properties from Michigan Turnkey). Nevertheless here’s a copy of what he said in his email response:
…my investment is not going as well as it was supposed to do. You know I paid for 2 properties in Detroit from here. For the second property I have some problems. I paid the full price of $ 45’000.00 to <edit company name> for it in March 2011, and I still don’t have the deed ! And I can’t anymore get in contact with the seller <edit company name> by mail or telephone. So I’m looking for an attorney in Detroit who can help me to cancel the contracts and refund my money back so I can invest in another property in Detroit. Could you give advice?
Clearly he has a big problem on his hands. Unfortunately I’ve heard this same story in various forms over and over again about investors purchasing property here in Michigan, and particularly in Detroit. The bottom line is that you need to know who you are dealing with when investing from afar. We’ve talked about this before on our blog in our post Invest in Turnkey Properties The Right Way – Step 1 – Select the Right Team. In that post we offer several recommendations for evaluating the company you will be working with. You will certainly want to do your due diligence on the company you’re working with and before you send money to any company.
This brings up another mistake this particular investor made – you should NEVER send money directly to the company you are working with. Money should always be sent to a title company who will manage the transaction. The title company is there to protect you because they abide by the purchase agreement contract, and your funds will not be transferred to the seller until all requirements in the purchase agreement have been achieve. Then once this happens and both parties sign all the closing documents the title company makes sure you receive the deed to the property because they record the transaction with the local municipality. This obviously did not happen with this particular investor’s transaction.
So, take heed, there are people here in Michigan (and dare I say lots of them) who are trying to rip you off. Please, do your due diligence on the company you will be working with as this can avoid very serious problems like our example above.
Stay tuned…
The True Unemployment Rate in Michigan
Posted by toddbrittingham in Michigan Real Estate Market on December 20, 2011
Recently I had a discussion on Facebook with a number of real estate investors about the unemployment rate in Michigan. The discussion started when I posted a news article indicating Michigan’s unemployment rate has fallen below 10% for the first time in 3 years. After looking into the published unemployment number a bit more, it becomes clear that the published unemployment rate is a little misleading.
Below is a chart showing the published historical unemployment rate for Michigan along with a plot of the labor force.
From this chart you can see that Michigan’s published unemployment rate currently stands at 9.8%. The discussion really starts when you consider that the published rate includes a decline in the labor market of approximately 415,000 people since 2007. Looking into the data a bit more, it seems that the published unemployment rate does not include those that would like to work but have stopped looking for a job. This essentially happens when people stop receiving unemployment checks.
Perhaps a better estimate of the labor force would be the most recent peak in the labor force. This happened in 2007 with a labor force of 5,072,000 So, if you recalculate the unemployment rate using the 2007 labor force, unemployment rate looks a bit more like the chart below.
Clearly the reduction in labor force has skewed the numbers. Using the 2007 labor force, you can see that the unemployment rate jumps up quite heavily, and it would currently stand at 17.2% in Michigan. However, this estimate probably swings things a little too far because if you look at the population statistics, Michigan lost approximately 167,000 people between 2007 and 2010. This trend is expected to continue into 20011, and it is reasonable to assume that at least half of this population loss has can be applied to the labor force. So, adjusting the labor force to account for the population loss since 2007 we arrive at the unemployment chart below.
With this estimate, you can see that the unemployment rate is projected at 15.0%. I believe this to be a much better estimate of the unemployment rate in Michigan.
Now, the actual unemployment rate can be debated, but to understand how the economy is moving it is much more important to look at the trend in the data. No matter which method is used, the trend in unemployment since 2009 is downward. There was an up-tick earlier this year, but this up-tick has fully reversed, and the recent trend is certainly downward. Obviously the size of the labor force and how it is accounted for has a big impact on the unemployment rate, but based upon this analysis I am comfortable concluding that we are in a declining trend for unemployment in Michigan. Of course we will continue to watch the unemployment rate and we will continue to apply the adjustments discussed here in this blog.
I would like to thank those that have debated this with me, and I invite all to comment on this analysis.
Michigan Real Estate Market Indicators – December 2011
Posted by toddbrittingham in Michigan Real Estate Market on December 15, 2011
We continue to see positive signs in the unemployment rate, foreclosure rate, auto sales and home prices…let us know your thoughts on this data…
The Details of Our New Partnership Program
Posted by toddbrittingham in The Michigan Turnkey Process on December 1, 2011
On Monday we announced our new Turnkey Partnership Program. Since then we’ve received quite a few questions about it, so we wanted to take a few moments to explain some of the details.
So How Does It Work?
As the name implies, this program involves YOU partnering with Michigan Turnkey to invest in real estate. The strategy for the investment will be to purchase a property, hold it as a rental for approximately 5 years and sell the property for a profit at the end of the 5 year term.
With any real estate investment there are 3 critical elements that must be brought to the table.
- Money – Money is obviously needed to pay for the property, closing costs, repairs and other expenses incurred while preparing the property to be rented.
- Time – Time needs to be dedicated to finding the right property, placing bids, managing the closing process, hiring contractors, overseeing repairs, screening for tenants, showing the property, etc. The bottom line is that there are a number of things that need to be managed simultaneously, and time needs to be dedicated to these activities.
- Knowledge – Knowledge is needed to ensure success with the investment. How do you find the right property? What repairs should be made? How do you manage contractors? How do you screen for tenants? How do you prepare the lease? What is the best way to advertise the property? These are all very important questions that need to be well understood for the investment to be successful.
The way this program is structured, you will bring money to the table, and Michigan Turnkey will bring time and knowledge to the table. Together, we will create an investment in one or more properties to generate profits for both.
How Do We Make Money?
In this investment there will be two primary ways that we will generate profit. First and foremost, profits will be generated from the rent collected from the property. The key is to generate enough income from the property to pay for all expenses and have money left over for profits. The second way we will make money from this investment is through property appreciation. Over the past 5 years, Michigan’s real estate prices have dropped about 60%. However, the economy in Michigan seems to have turned the corner, and we’ve started to see signs that prices are rising. Our assessment is that now is an excellent time to be purchasing as much property as possible to hold for future appreciation.
How Will The Partnership Be Structured?
The schematic to the right shows how the partnership will be structured (click picture to enlarge). Here’s how the roles for the investor and Michigan Turnkey will be broken out:
Investor’s Role – Provide Money
- The investor provides funding for purchase and repairs.
- The investor receives a promissory note for their investment.
- The promissory note entitles the investor to receive interest payments, it retains the value of the initial investment over a 5 year period, and it secures the equity you have in the property (more on equity below).
- The promissory note is secured by the property. This is done by recording a mortgage against the property with the local municipality. With this structure, the investor will be in a 1st lien position on the property.
Michigan Turnkey’s Role – Provide Time & Knowledge
- Michigan Turnkey sets up the property. This includes locating the property, managing the purchase process, managing necessary repairs, marketing for tenants, screening tenants, providing property management, collecting rents, paying all expenses, taking tenant calls, and managing any other day-to-day issues with the property.
- Title to the property will be held by Michigan Turnkey
How Much Will You Make?
With this program we are providing two options for the investor. One option includes a monthly interest payment and equity sharing, while the other option only includes a monthly interest payment. If you select the option with equity sharing your interest payments will be lower than if you only collect interest payments.
So what exactly is equity sharing? Equity is the amount of money that would be left over if the property is sold. So if you select the option with equity sharing, at the end of the 5 year period when we sell the property you would share in the profits generated by the appreciation in the property.
We are offering the two different options because there is no guarantee for the property to go up in value. Therefore, you could invest in the property, and if the property does not appreciate, you will not earn any profits from the equity sharing. Therefore we are offering an option where the interest payments are a little higher but no equity sharing is offered.
Here are the details of the two options:
Option 1: 9% Interest + Equity Sharing
- You will invest an amount equal to 70% of the after repair value of the property
- You will receive a promissory note in the amount of your investment
- This note will be secured against the property with a first lien position.
- You will receive monthly interest-only payments at an interest rate of 9%
- The property will continually be marketed for sale, and if it sells you will share in 50% of the equity (profit)
Example for Option 1 – 754 E Mansfield, Pontiac, MI
- Property Value: $39,000
- promissory Note: $27,300
- Note to Value Ratio: 70%
- Interest Rate: 9%
- Your Monthly Check: $204.75
- Your Equity on Day 1: $5,850
So, with this example, you would invest $27,300, and you would receive monthly payments of $204.75. Once the property sells for $39,000 you would receive your initial investment of $27,300 back along with 50% of the remaining profit which equates to approximately $5,850.
Option 2: 11% Interest, No Equity Sharing
- You will invest an amount equal to 70% of the after repair value of the property
- You will receive a promissory note in the amount of your investment
- This note will be secured against the property with a first lien position.
- You will receive monthly interest-only payments at an interest rate of 11%
- The minimum investment term is 5 years, at the end of 5 years you will receive your initial investment back in the form of a balloon payment
Example for Option 2 – 754 E Mansfield, Pontiac, MI
- Property Value: $39,000
- promissory Note: $27,300
- Note to Value Ratio: 70%
- Interest Rate: 9%
- Your Monthly Check: $250.25
- Your balloon payment at the end of 5 years: $27,300
So, with this example, you would invest $27,300, and you would receive monthly payments of $250.25. You would remain in the investment for a term of 5 years, and at the end of the term you will receive your initial investment of $27,300 back in the form of a balloon payment.
We’re pleased to bring you this partnership opportunity. If you are interested in partnering with Michigan Turnkey, feel free to email me at todd@michiganturnkey.com. You can also find more information on this partnership program on our partnering page at MichiganTurnkey.com
