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The Arson Capital of the World

By Tom Dyson, publisher, The Palm Beach Letter
Thursday, May 3, 2007

On October 28, 1984, the mayor of Detroit announced a 6 p.m. curfew for all children under the age of 18.

The curfew would last for three days. Anyone caught breaking the curfew would be arrested. Then, he deployed additional police and firefighter patrols, planned school assemblies, and organized neighborhood meetings all around the town...

It was no good. Over the next three days, arsonists set 810 buildings on fire in Detroit.

It's called Devil's Night. It takes place the night before Halloween every year in Detroit. It started as a night of pranks and mischief for kids, but by the early '80s, the night had morphed into a citywide arsonfest.

Detroit rap star Eminem touched on Detroit's flair for arson night in his movie 8 Mile. His gang set fire to an abandoned house and then stood around watching it burn.

But, it wasn't just anarchistic youths setting fire to houses. Entrepreneurs started doing it, too. Their businesses were failing, so they'd set them on fire, blame the kids, and then collect insurance.

You see, in the early 1980s, Detroit's economy was in the dumps. The oil price shocks of the 1970s had given Japanese automakers a toehold in the market with their compact cars. The Detroit automakers laid thousands of people off. Detroit's inner city became violent and lawless. Detroit had one of the best highway systems in the country, so the middle-class fled to the suburbs and learned to commute.

Between 1900 and 1950, Detroit's population went from 280,000 to almost 2 million. Over the next 25 years, Detroit lost half its population.

As Mayor Coleman Young announced the 1984 curfew, thousands and thousands of houses stood empty. Businesses rotted. The city had no money to demolish the old neighborhoods, so I guess the people decided to clear the slums on their own terms.

These days, Devil's Night doesn't really exist anymore. Detroit's authorities rebranded it "Angel's Night" and enlisted 40,000 volunteers to roam the streets each year with two-way radios and amber beacons on their cars, keeping the peace.

The arsonists may have mellowed. But, unfortunately, Detroit's economic problems still burn...

Detroit now has the cheapest property market in the country, suffers the highest rate of unemployment, and routinely gets the worst press of any big city in America. (Detroit is not the murder capital of the world anymore, but it still claims the highest rate of arson per capita.)

Here's the thing: The best way to make money in investing is to buy when things go from bad to less bad. I don't think the situation can get much worse in Detroit... in fact, it looks like things might finally be turning around...

Take property, for example. No one else is interested, so there's huge supply, and it's very, very cheap.

I spoke to a Detroit property investor the other day. He owns 40 properties. "The Detroit market is a fantastic market to invest in for foreclosures," he said. "I have never paid more than $20,000 for a home and routinely find deals for homes that appraise for $70,000 to $100,000."

Someday, the car companies will figure out how to wriggle out of their obligations and start off fresh. Maybe they'll declare bankruptcy... or maybe the government will bail them out. Who knows? One thing's for sure: Someday Detroit will recover and clever investors – like the realtor I spoke to – will make a fortune.

Good investing,

Tom

P.S. As an investor, I'm very attracted to Detroit for these reasons. Next week, I'm flying to Detroit to look for cheap property. If you live in Detroit, do business in Detroit, or have insight into the Detroit property market, please contact me at editorialfeedback@dailywealth.com.





Market Notes


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