Points of Interest

Unemployment:
In the USA at this moment, 12.5 million people are out of work. (In the period January to February 2009 alone, there were another 650,000 more people out of work.)
8.6 million are working 3 and 4 day weeks.

The highest employer in the country at the moment is the Federal Government with 1.8 million employees across the States.

Mortgage Payments:
10 million people in America have negative equity on their houses. The value wiped off homes in the US in the past year is 2.4 trillion dollars.

Rentals:
There is currently a rental craze across the USA with some people even renting their spare rooms out at $600 per month. In one such case, a woman rented out her living room at $475 per month.

Taxes:
Taxes on houses are predicted to come down by 30% for the next year as from July. This tax is known as SEV (state equalised value) – we know it as Council Tax in the UK. In some areas, taxes will go up because of works done in that particular neighbourhood but 3 years later, it could be revalued back down. Handouts are being offered by the USA Government to get the economy moving and banks lending again.
1 trillion dollars is being made available to buy back toxic assets of the banks – part of this programme will close down the wave of foreclosure properties.

Detroit:
$50 billion has been allocated for the energy programme. Chrysler have been handed $1 billion dollars and are asking for another $5 billion. General Motors have had $13.4 billion dollars and want another $16.6 million. Ford – two years ago had $7 billion. This brings the total handouts to the auto industry in Detroit to $43 billion.
With all of the handouts and propping-up needed to get the USA back on track, it is expected that this programme will leave a budget deficit of $1.85 trillion.
Availability of foreclosure properties for investors: This will have a shorter window than first anticipated because of the plan to buy back toxic assets from the banks. At the very best, it could be 18 months but could easily be as short as 12 months.

Positive Spin-offs:
Boom in small community banks:
Small community banks are opening up across the USA, doing booming business from clients taking out their money from large, well known banks. The mortgage rate was at 8% but it is understood there will be a new rate offering of 4.6% or thereabouts.

Management of Property:

Management of property is provided for a 10% fee of the rental income.

Repairs of Property:
The management company has a permanent maintenance team on call for any repairs for the cost of the parts only and a small fee for labour.

Insurance:
Insurance can be offered for the first 3 months to cover fire, vandalism etc. whilst in the process of finding a tenant and after completion of refurbishment, for between $90 (64) to a maximum of $180 (128) for the 3 months. This is included in the purchase price.
Insurance cover for a year would be approximately $750 dollars (per annum). Owner liable for this if a Section 8 tenant is in place or the tenant would be liable if not a Section 8 tenant. (A section 8 tenant is one that has 95% of his rent paid by the government.)

Tenants:
The tenants will in the main be working Americans wanting rental property for the longer term. This is because the American government is injecting billions of dollars into Detroit for the simple reason that it is the home of the motor industry and they cannot afford to let the large car manufacturers collapse. The repercussions in unemployment and its inevitable spin-offs are too horrific to imagine for the economy. In this respect, over the last 5 months we have seen average rentals for the types of houses we offer increase from $500 per month to $800 and in some cases $1200 per month so there is very definite growth happening in the Detroit rental market. Because of the financial help these large car manufacturers are expected to scoop, job opportunities and more stability is being created in the city thereby producing very high rental yields for you, the investor.

Section 8: What is a section 8 tenant A tenant approved by the government, the tenant pays 5% of the rent while the remaining 95% is paid by the government into the investor's account.

Tax:
Belgrave Group is not authorised to give advice on tax and we suggest you seek your own advice However, the understanding is that there is a double tax treaty in place between the UK and the USA which means the investor will have only to pay tax once. We will have a tax expert based in Detroit to assist when tax returns are due. Income tax is waived in the USA by the Sub Chapter form which can be sent to your local accountant. Tax payable is, as a general rule, similar to any UK buy-to-let property. A website will be provided for you to do your own due diligence on this matter. (Capital gains tax is 15%.)

Why Detroit
Having looked at other states, we don’t see anywhere where your letting market has the capacity to produce the rental yields that Detroit has. Why do we say this The most obvious is the capital injection by the American government into the city to get the motor industry “ pumping again” creating more jobs, more stability and the fact that there is a very large workforce from which to draw your tenants. In Florida for instance, which is mainly a tourist revenue generated state, a similar foreclosure property that is available in Detroit for $10,000 would be in the region of $70,000 to $140,000 in Florida. Finding a tenant in Florida would not be as simple as there is not the concentrated workforce that there is in Detroit. The important rule here is that your investment should be viewed purely on the returns it will deliver. It is vital that investors do not make the mistake of becoming emotional about the particular property or the city he / she is buying in; rather concentrating on the returns on the monies invested. Detroit, we believe, is better placed to deliver the best bargains and the best yields in the short and long term.

So what category of investor would our proposition in Detroit be of interest to

      1. A hands-off client - in other words, a client who wants to be an armchair investor.
      2. A client who generally likes a safe market with as low a risk as possible, that is reasonably mature and secure in the knowledge that there are no unforeseen “tsunamies”.
      3. An investor whose positive cash flow is of paramount importance.
      4. Investors who would expect capital profit with up to 25% yields in a lot of cases.
      5. The investor would need to have a minimum 21,995 available to invest in such a market.

We are often asked the question how one can manage a portfolio from so far away. Put simply one can't, or at least not with any degree of success, so it is critical that a capable management company is in place, which is what we offer. We pride ourselves on a high degree of commitment and professionalism, and provide all the above for 10% fee. We might add that most management companies in the States charge between $200 and $250 dollars a month. Ours is a critical service to make your investment as stress-free and successful as possible at a very reasonable cost.