Beware of working in Detroit warns leading UK consultancy
26 April 2012 10:11
A leading overseas property consultancy has warned agents and developers to be very careful about working on and/or selling distressed homes based in Detroit, Michigan.
Stuart Law, the chief executive of Assetz International Limited, told OPP this week that although many international investors have done well in the city, recent high profile company failures have left a number of buyers from abroad in a
“This is a complex situation,” says Law, whose business acted as one of the international sales agents for NSUK, a Detroit-based partnership that failed to deliver on its commitments. Assetz International decided to help its clients following the problems that arose for some buyers.
“We have customers of ours who are really grateful we stepped in and helped them to find a solution to finish off their refurbishments and rent their properties.” NSUK had been responsible for buying, renovating and letting the properties.
Speaking exclusively to OPP, Law said “We sourced new suppliers to complete the house refurbishment works for typically $2,000 to $13,000 additional expenditure above the original purchase price, which enabled the investors to let the properties at yields of between 10% and 14% rather than the previously indicated 15% net yields. This is still a very good outcome and two to three times UK net yields but the business failure caused distress to many of the purchasers.”
His team has supplied solutions, information, regular updates, new suppliers and paid legal help to all of the clients that invested in Detroit via Assetz International to find a workable solution, but has been horrified to see a number of other high profile sales agents leave their Detroit buyers high and dry. “You simply don’t walk away from buyers in this situation and avoid talking to people about what has happened,” he says. “And we are seeing it through with all of our buyers.” Law has emails from relieved clients to prove his point as well as emails from distraught buyers from other agents who were ignored.
He also disputes press stories in the States that imply the buyers involved were foolish. “That’s just not true,” says Law. “Almost all buyers did everything right – they went over there on site visits, they carried out their own due diligence on top of that which we carried out, they looked into the rental market, but still got caught out. A business relationship fell apart and the business at the centre of the deals went down leaving buyers in some cases with un-refurbished or unrented homes. There was no fraud that anyone has evidenced to date on this and indeed it could happen anywhere in the world."
Assetz International has found that officialdom in Detroit is slow and unapproachable, paperwork takes too long to arrive and the Section 8 local government guaranteed tenancy system does not work as effectively as it should or used to. It is slow and cumbersome, and the pre-tenant inspections take too long. Refurbished properties risk lying vacant for too long, waiting for a section 8 green light to come through, and can often be vandalised in meantime.
“We would no longer recommend Detroit,” says Law. “Buyers are going to find that the product there can be made to work, but there are easier and safer places to put your money.”
“The city does not have a lack of tenants, it is the local politics that are the problem. They cannot get their act together, the Section 8 paperwork does not come through on time, we hear they are running out of funding and too many people have had their fingers burned.”
“However, it is still possible to buy very cheaply and to renovate very cheaply there, and to make a good profit. It is just too high risk now for us to continue sales there.”
At least a dozen overseas investors are reported to say that their more-than-$2 million investments in Detroit are at risk if they do not act and pay for refurbishments to be completed and get their properties let. Many complain that they have been left with empty, incomplete houses in Detroit and that local law enforcement officials have avoided taking any action presumably because no crime can be shown.
Any housing investment claiming it can, today, guarantee a Section 8 housing tenant, following recent tightening of procedures, should raise red flags, said Eugene Jones, executive director of the city of Detroit's Housing Commission.
"It just doesn't work that way. It's a lengthy process for any property to be qualified, and there is no guarantee that the property will be chosen," Jones adds.
While the city of Detroit has 6,000 housing vouchers for people under the Section 8 housing program and a waiting list of 40,000 people, he said, "There are not many people with Section 8 housing vouchers that are looking for residences."
PLEASE NOTE THE ABOVE ARTICLE IS FOR INFORMATION ONLY NONE OF INVESTMENT PROPERTY WORLDWIDE CLIENTS HAVE BEEN INVOLVED IN THE ABOVE FIASCO AS A COMPANY WE PUT OUR CLIENTS INTERESTS FIRST SO AS SUCH WE WILL NO LONGER BE SOURCING OR OFFERING THIS TYPE OF INVESTMENT AS WE BELIEVE IT IS TOO HIGH RISK.
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