After many urban centers in the United States fell into decline for the last five decades, a new revitalization movement has successfully swept the nation. From the West Coast to the East Coast, urban areas are seeing a rebirth, economically and culturally. America’s re-focus on the local economy, as well as independent businesses, has led to the growth in appeal of urban centers.

In addition, the lure of city centers continues to grow stronger with large segments of the population, including younger professionals, empty-nest couples, and individuals without children. The convenience of living downtown, with work and entertainment options, along with the excitement of enjoying the city, has prompted many urban deaths to be re-born.

With that said, the question remains: Will Detroit real estate enjoy the rebirth of urban renaissance?

San Diego: From slums to luxury

From the 1950s to the mid-1980s, Downtown San Diego experienced significant decline. Not only did residents leave, but they were followed by the retail, entertainment, and restaurant establishments that opted to conduct business elsewhere. With the fleeing of both residents and businesses, Downtown turned into an essentially abandoned area, filled with vagrants, drugs, and crime.

Due to city initiatives, Downtown San Diego has experienced a significant revitalization, now becoming one of the most valued property locations in the county. With the opening of the prestigious San Diego Convention Center, San Diego Padres’ Petco Park, along with the tremendous growth in popularity of the luxurious Gaslamp District, thousands of residential condos were developed to meet the demand. In fact, when the Hard Rock Hotel San Diego offered suites for sale, they sold out in the very first day.

Today, Downtown San Diego, especially in the Gaslamp District, hold very high rent values, as restaurants, retail stores, and entertainment venues vie to open their doors in the highly popular area. The revitalization of Downtown San Diego has been incredibly successful, turning the abandoned area into a luxurious destination filled with waterfront properties, popular live-work buildings, and five-star hotels.

Revitalization of city centers around the country

San Diego is by far not the only example of a highly successful downtown revitalization. From Los Angeles to New York, and Philadelphia and Baltimore in between, many downtowns – and their savvy investors – have enjoyed the benefits of a city rebirth.

There are several elements that are impacting the revitalization of our nation’s downtowns:

• Rising cost of transportation: The continuously rising oil prices, along with the consumer’s greater awareness of eco-friendly choices, have prompted both people and businesses to choose downtown areas. The ability to walk or bike to work and entertainment destinations is quite attractive.

• Changing demographics: The growth of the population, as well as professionals’ desire to reduce commute times, has the areas surrounding centers to undergo gentrification. Understandably, this shifts the demographics of the region, and the once-shunned downtown becomes more attractive for living, especially because of the lower values in comparison to the already gentrified areas.

• Diversified industries: One of the reasons many downtowns fell from grace stems from the struggle of the region’s main industry. However, with the diversification of industries, city centers are enjoying a rebirth. Cleveland, Pittsburgh, and Baltimore are all great examples of a former failing industrial region converted into a diversified economy – and a subsequently reborn urban center.

The future of Detroit’s real estate revitalization

The successful revitalization around the nation – from abandoned industrial slums into luxurious renaissance city centers – bodes well for the future of downtown Detroit. With its deep history, ranging from Motor City to Motown and the Red Wings, the cultural lure of Detroit is undeniable.

Detroit shares many of the same pre-requites for successful revitalization. “Motor City” is indeed growing more diversified, including industries in human resources, finance, and the health sciences. Although the McMansions will always be prevalent at 30 Mile Road, the younger generation of professionals – who care about the environment and enjoying cultural entertainment – will be apt to move downtown.

The signs of revitalization are already clear in Detroit, including the popularity of the RiverWalk development, which connects the Joe Louis Arena to Gabriel Richard Park. The brownfield redevelopments throughout Detroit have also been met with success, such as the FD Lofts in Eastern Market, which homes many creative businesses as a mixed-use building.

For the savvy investor who is willing to overcome certain hurdles, the opportunities are lucrative in downtown Detroit investment properties. Although Detroit MI real estate is still on the cusp between death and rebirth, the probability is high that the future of Detroit is akin to its other successfully revitalized urban counterparts. Thus, the investor who sees the future of Detroit real estate can purchase great properties at incredibly discounted pricing – building in significant profit for the subsequent full revitalization boom.

As a Detroit real estate investor, you enjoy the foresight of the revitalization success seen in other urban areas. By seeing the future of Detroit’s rebirth, you can build your long-term portfolio of profitable equity from the demand that flows in from those seeking a culturally rich and convenient lifestyle downtown.

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Investing in real estate provides ample benefits, ranging from passive income from rental properties to long-term value appreciation. However, another significant benefit of investing in Detroit real estate is the tax benefits, especially for those earners who fall into the high-income tax bracket.

Investing in Detroit Michigan real estate saves you extensively on your taxes – giving you the opportunity to use the saved taxes on more fruitful investments, or simply as an addition to your savings account.

The value of depreciation

For many investors in Detroit real estate, the most powerful tax incentive stems from depreciation. In fact, the IRS requires that all investors depreciate the value their investment properties, thus giving you a strong tax benefit.

Depreciation is a capital loss that you take on paper, which accounts for the wear and tear of the home, as well as any built-in obsolesce. However, keep in mind that the value of the land itself cannot be depreciated. Only the building structure on the property itself can be depreciable. Subsequently, as condominiums and town homes do not have any land value, the entire value of the Detroit investment property can be depreciated.

For a residential Detroit real estate investment, you can depreciate the value of the property over 27.5 years. For commercial Detroit real estate, the depreciation is calculated over 39 years.

Categorization as a “real estate professional”

If the IRS categorizes you as a “real estate professional,” which means that you invest 750 hours annually towards your Detroit investment properties, you have even greater tax benefits. In fact, if you invest this type of time, along with full participation in the management of your Detroit investment properties, then you have almost limitless tax deductions from your income taxes.

However, if you are not a “real estate professional” for your Detroit real estate, then the maximum you can deduct is $25,000 from your ordinary taxable income. However, keep in mind that this includes the depreciation value as well. In addition, should your annual income surpass $100,000, and you are not a “real estate professional,” then the $25,000 deduction begins to phase out, and after $150,000 in income, you are not subject to any deduction.

Nonetheless, you can still qualify as a “real estate professional” simply by hiring a property manager. You just need to make the major decisions, such as setting rents, interviewing tenants, and managing major expenses. However, you do not need to manage the day-to-day operating details. For the nearly unlimited tax expense deduction, this small effort may prove to be significantly worthwhile.

Value of a 1031 Exchange

Detroit real estate investments provide interesting tax benefits that are not matched by any other type of investment instrument. The 1031 Exchange allows any investor to sell a property, and then invest those proceeds into another similar asset. When this occurs, you can defer your capital gains tax.

As long as you invest your sales funds into another similar asset, you do not incur any capital gains or losses – and no other type of investment instrument can provide you with that type of tax benefit.

Deductions in Interest Expense

Another tax benefit to Detroit investment properties stems from your deduction of tax expenses. If you take on a mortgage for your Detroit real estate, then you can deduct the taxes you paid for this investment – saving you potentially tens of thousands a year in tax deductions.

Purchasing Detroit MI real estate provides ample opportunities, not only in passive rental income, “free equity” from renters, and long-term appreciation, but also significant tax benefits that can save you tens of thousands annually. No other type of investment can live up to those benefits.

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Although the credit marks have tightened their belts in lending, savvy investors still have options when it comes to profiting from Detroit real estate. Indeed, there are many investment opportunities of deep value, providing an investor with ample room to create rental properties, flipped homes, or long-term equity holds.

Low cost of foreclosures create ample profits

In today’s market, homeowners facing foreclosure are double in numbers in comparison to a year ago, according to industry data analyzer Realty Trac. Indeed, many economic and historical factors play into the national decline of housing pricing, conspiring against value like a perfect storm.

Consumers were buying into their piece of the American Dream in record numbers, thanks to easy mortgage money from lenders with liberal guidelines. One hundred percent financing, with seller concessions encouraged, meant that nearly anyone could get their name on a deed without any “skin in the game.”

Detroit Real Estate has not been spared its share of the pain. In 2007, Michigan was ranked in third place among the states for failing mortgages and impending foreclosure. Almost two percent of Detroit Michigan properties were vulnerable to foreclosure due to mortgage default.

Taking advantage of hard money for investment properties

In Detroit Michigan real estate markets, hard money can be a useful tool in the purchase of Detroit foreclosures, intended flips or rehabs. Traditionally, this would require significant down payment from the investor because of the low loan to value given. However, for an opportunity to buy valuable properties at a distressed price, hard money may be useful.

With hard money, investors have the power of leverage, which multiplies the return on your Detroit investment properties. You only need to invest a small percentage of the house’s value, such as 10%, yet you earn your returns on the entire value of the home.

For example, you want to purchase a $100,000 Detroit investment property, and you have the option of putting 10% or 20% down on the home. If the value of the home grows to $110,000, then only placing $10,000 down on the home will give you a 100% return on equity. Had you placed 20% down on the home, your ROE would only have been 50%. As long as the profit you reap is larger than your interest costs, then in the long-term, using leverage is always more advantageous.

The supply of Detroit real estate, available at less than half of its appraised value just a few years ago, creates the ideal opportunity to accumulate Detroit investment property or flip a fast rehab.

While declining markets can be tricky, a knowledgeable contractor or handyman can renovate a Detroit rehab into a suburban residential viable rental property or flip sale. For would-be buyers of Detroit Michigan real estate, hard money loans may be the fastest kind of loan transaction to closing, since there is usually no verification of income, employment and credit.

Types of Hard Money Loans

There are several different types of hard money loans available for Detroit foreclosures and Detroit investment properties:

Acquisition Loan

This type of hard money loan is used to specifically buy Detroit real estate. It is ideal for short term holdings, such as a flip, as interest is generally in the teens, typically 11% to 18%. Ideally, the loan would be paid off within a few years from a lower cost source of funds.

Mezzanine Loan

A mezzanine loan is subordinate (in second lien position) to another bank or lender who holds first lien position. It is repaid at the same time that the primary lender is paid off. Sometimes equity is given to the lender, in addition to loan repayment. Debt and equity are blended in the terms of this type of loan.

Development Loan

This hard money loan is used for acquisition plus improvement of a property. The total loan amount is based on the fully improved value, and interest-only payments are made to the lender.

Bridge Loan

A hard money bridge loan is an immediate solution for a resolute buyer who must act quickly. For Detroit MI real estate, a plethora of buy opportunities would present the need for such a loan. These might include acquisitions of commercial buildings, including apartment houses, and commercial businesses and properties. Bridge loans are short term by nature, and are usually paid within two years.

Other forms of hard money can be used wherever equity secures the loan, including construction of new improvements on raw land.

In today’s market, it is important that savvy investors of Detroit investment propertie sand Detroit real estate act decisively. To hesitate on a great acquisition opportunity is to lose the deal and likely future capital growth. Therefore, hard money can be the right leverage for Detroit Michigan real estate investors, even those who may have flawed credit.

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