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DSCR Loans in Michigan
Michigan's one non-negotiable rule: never underwrite the seller's tax bill, because Proposal A caps taxable value while a property is owned — and uncaps it to full state equalized value the year after you buy. A landlord who held for twenty years may be paying taxes on a fraction of today's value; your bill resets to the real number, and as a rental you'll pay non-homestead school mills on top. Get that line right and Michigan is genuinely rewarding — real yields, no rent control, and one of the country's most quietly excellent second markets in Grand Rapids.
The uncapping trap, explained
Since 1994's Proposal A, a Michigan property's taxable value can only grow slowly while ownership is unchanged — but the year after a sale, it "uncaps" to the full state equalized value (roughly half of market value). The longer the seller held, the bigger the gap between the capped bill on the listing and the uncapped bill you'll actually pay; on a long-held property the jump can be dramatic. This isn't a maybe — it's automatic. Estimate the uncapped bill from the SEV and the local millage before you write the offer, and run the ratio on that number in the calculator.
Non-homestead mills: the second hit
The uncapping trap has a partner. Michigan's statewide effective rate averages about 1.35%, but that blends owner-occupants with investors — and they don't pay the same rate. Rentals are non-homestead property, which pays additional school operating mills — roughly 18 mills more than an owner-occupied home in the same district. So the seller's bill misleads twice: it's capped at their old taxable value, and if they lived there, it excludes the school operating tax you'll owe. The honest pro-forma applies the non-homestead millage to the uncapped value. Anything less is fiction with a spreadsheet.
The market map
- Detroit metro: genuine yields in the suburbs and select city neighborhoods. Be honest about the city proper — quality varies block by block, insurance runs higher, and some streets are strong holds while the next one over isn't. Local knowledge isn't optional.
- Grand Rapids: the quietly excellent second market — steady population and job growth, stable tenant demand, and less drama than Detroit's headlines. Ratios are thinner than deep-value Detroit but far more predictable.
- Lansing, Flint, Kalamazoo: deeper-value plays with strong gross yields — and correspondingly more attention required on tenant quality, property condition, and neighborhood selection.
- No rent control, statewide: Michigan law preempts local rent control, so no city can cap your rents.
Winter is a line item
Michigan's freeze-thaw cycle isn't a talking point; it's a maintenance budget. Roofs age faster under ice load, gutters and flashing fail, foundations and driveways crack, and a burst pipe in an under-heated vacant unit is a five-figure event. Much of the rental stock is older, which compounds it — the same capex honesty we preach for Ohio applies here with a snow shovel. A DSCR lender underwrites PITIA, not your reserve account, so the discipline is yours: budget real per-door reserves, winterize vacancies, and treat a pre-purchase inspection as the cheapest insurance you'll ever buy.
Frequently asked questions
Can I use the tax bill from the listing in my DSCR math?
No. Proposal A uncaps taxable value to full state equalized value the year after you buy, and as a rental you'll pay roughly 18 additional non-homestead school operating mills. Estimate from the SEV and the local non-homestead millage instead.
Is Detroit itself financeable, or just the suburbs?
Both can work, but the city proper is block-by-block: insurance costs more, values swing street to street, and some properties won't appraise cleanly. Suburban files are usually the smoother DSCR close.
What about Grand Rapids?
Arguably the state's best risk-adjusted market — consistent growth, steady tenant demand, and fewer surprises than the deep-value cities. Ratios are thinner than Flint or Lansing, but far more durable.