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Detroit Has the Best Cash-Flow Business in the Nation

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, January 7, 2009

"It used to be the nicest home on the block," said a neighbor.

In November 2006, 8111 Traverse Street sold for $65,000. Then the bank foreclosed it. Thieves stole the fences, siding, and everything else inside the house. Two years later, 8111 Traverse Street sold for $1 in an auction.

Traverse Street is in downtown Detroit. Detroit's population is around 800,000. Yet it has enough houses to accommodate 3 million people. Pessimism and oversupply make it easy to buy houses in Detroit for less than $100.

Detroit's largest industry – the auto industry – is bankrupt. The Big Three Detroit automakers employ 240,000. Direct suppliers to the Big Three employ another 970,000 workers. In total, the Detroit auto industry provides work for 3 million when you include all the "spinoff" jobs.

According to the government, Detroit's unemployment rate is the highest in the nation at 11%. But one private report I found says the unemployment rate is actually above 20%. It'll rise even higher if any of the automakers go bankrupt.

One or more of the automakers will declare bankruptcy soon. GM and Chrysler probably would have gone bankrupt last month if President Bush hadn't loaned them $17 billion. The trouble is, the longer these companies wait to declare bankruptcy and restructure, the more market share they lose to their competitors and the worse the situation becomes. In other words, this loan makes Detroit's long-term unemployment situation even worse.

Detroit has one of the highest tax rates... and it receives more federal superfund money to clean up toxic-waste sites than any other metro area in the country. Detroit's mayor is in jail for perjury. He had an affair with his chief of staff. Then he lied about it in court, even though he'd sent thousands of amorous text messages to her using his city-issued pager. He's serving four months in a 10-by-15-foot cell.

The final straw is Detroit's football team, the Lions. It is the worst team in the history of professional football. This year, it lost every game. This is the first time in the history of the NFL a team has lost every game in a season.

Most people think Detroit is a terrible place to buy real estate. They are wrong. Detroit is one of the best places in the world to make money in real estate.

It's so cheap, you can't lose money. Detroit residents love to rent property. It's difficult to find financing to buy, and no one wants the responsibility of ownership. So there's almost a 100% occupancy rate in Detroit's rental property market. You can generate 40% cash flows. And if you rent property to low-income families, the government deposits the monthly rent directly into your bank account, so you don't have to chase the tenants.

Yesterday, I spoke to a friend in Detroit. His name is Andrew Kuhn. Andrew is a commercial real estate investor. He says Detroit real estate investments spin off 18% per year, with no risk to capital.

"I'm acquiring apartment complexes," he says. "It is by far one of the most fundamentally sound cash-flowing businesses in the entire nation right now."

Next week, I'm going to interview Andrew and show you exactly how he does it...

Good investing,


Market Notes


It didn't take long for "extremely cheap" oil to get less extremely cheap.

A few days before Christmas, we ran a chart of the little-known gold/oil ratio. Both commodities respond similarly to inflationary pressures, so the ratio tends to trade in a predictable range. The range can get stretched to the downside, which means gold is cheap. It can get stretched to the upside, which means oil is cheap.

Due to oil's spectacular decline this fall, the ratio was stretched to its upper limits when we published the chart. One ounce of gold would buy you about 24 barrels of oil (it usually only buys 14 barrels). It was an incredible extreme… one that is busy correcting itself.

The correction comes in the form of oil's 36% rally since Christmas. The rally has moved the gold/oil ratio to 18. Oil isn't as "extremely cheap" anymore, but it's got more room to run.

Oil - Light Crude - Continuous Contract

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