Detroit's $1,000 houses may be a lousy deal

The price is right, but good luck turning a profit, house flippers say.

By MSN Partner Apr 16, 2014 8:52AM

Via www.buildingdetroit.orgBy Daniel Goldstein, MarketWatch

 

MarketWatch
For sale: A spacious 1,600-square-foot, three-bedroom Tudor-style home built in 1929, with one-and-a-half baths, glass block windows, hardwood floors, crown molding and custom fireplaces. Within walking distance of restaurants, playgrounds and public schools.

 

And it’s being offered next month for as little as $1,000.

 

Just one catch. The single-family house on 5500 Kensington Ave. has a ZIP code that makes listing agents wake up in cold sweats: 48224.

 

For the uninitiated, that’s the center of Wayne County, Michigan. Otherwise known as Detroit.

 

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Still, if you’re the right kind of buyer, the Motor City has a deal for you. The city, which filed the largest-ever municipal bankruptcy last year and has been ground zero for urban blight for decades, is holding an online auction for more than a dozen Tudor and Colonial-style homes in tax lien-related foreclosures. The starting bid at www.BuildingDetroit.org is just $1,000, which officials hope will clear off an unwelcome inventory of more than 16,000 empty homes.

 

“We are moving aggressively to take these abandoned homes and get families living in them again,” Detroit’s Mayor Mike Duggan said at an April 14 press conference. “There are a lot of people who would love to move into many of our neighborhoods. Knowing that other people are going to be buying and fixing up the other vacant homes at the same time will make it a lot easier for them to make that commitment.”

 

The auction, which starts next month, will put a handful of single-family homes on the market for as little as a few dozen C-notes or a swipe of a credit card. You can bid up homes in $100 increments, according to the auction site.

The sales are only open to Michigan residents who owe no back taxes in Wayne County and to companies licensed to do business in Michigan that have no prior building code or blight violations or tax foreclosures.

 

The city will auction one house a week, most of which are in the East English Village section of town, starting May 5. An open house for all 15 homes will be held on April 27.

 

Auction winners still must move fast. The sales require a 10% down payment within 72 hours, while settlement must be made within 60 days. Full payment must be made within 60 days if the purchase price is less than $20,000 or within 90 days if it’s more than $20,000. And you must have a certificate of occupancy and an owner living in the house within six months.

 

“We are not looking for speculators,” said Erica Ward Gerson, head of Detroit’s Land Bank Authority, the agency that will administer the program. “If you’re not going to act diligently to fix up the house, you’ll lose the house and your money.”

 

A $20,000 deal won’t cost much, at least on the surface. A 30-year mortgage at that price and national average 4.36 percent interest would just set you back $99.68 a month, including property taxes and mortgage and property insurance, according to Bankrate.com.

But it isn’t a turnkey deal. Many of the homes lack water heaters and furnaces, need new roofs and windows, not to mention kitchen appliances and fixtures, and could do with a new coat of paint. Rehab on the properties must also begin within 30 days after getting the deed and the front door keys.

 

So would flipping the house, even if you bought it for a few thousand dollars, turn a profit? Given that the average sales price of homes in the English Village neighborhood on Zillow.com is just $48,000, one veteran “flipper” says no.

 

“I just can’t see a lot of these deals working,” said Bill Kendall, a Keller Williams realtor based in Pittsburgh who flips as many as two dozen homes a year around the country, some in as little as eight weeks.

 

But Kendall said if many of the Detroit homes are missing furnaces and hot water heaters, the investors could be in for $20,000 in basic necessities before any cosmetic improvements were done. “Given the neighborhood where these homes are located, you’d be better off turning them into rentals,” he said.

 

That’s because rentals typically require only half the cosmetic improvements a property for resale requires, according to Kendall, who has been flipping properties since 2006.

 

He said it’s also not clear whether the properties are free of mechanics liens, a type of lien placed by a contractor when they improve a house value by 15 percent or more but aren’t paid by the owner. “You would need a really good title search first, otherwise it’s opening a Pandora’s Box.”

 

Buyers also need to be aware that they could be on the hook for as much as $5,000 to $10,000 in property taxes a year even though the properties are distressed, said John Dingell III, a scrap metal dealer in Detroit and the son of former Michigan Congressman John Dingell, in a phone interview.

 

“Under Michigan law, the property value for tax purposes does not reset to the sales price for distressed or foreclosed auction sales,” he said. “This is why there (will be) few takers on these houses.”

 

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385Comments
Apr 29, 2014 11:57AM
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Haven't you watched hardcore pawn? If you buy one of these piece of crap homes, move in, you would be living near or next door to the owner of that pawn shops kids. Do you really want the daughter for a neighbor? Or the owner for that matter. Or some dipsh** screaming racist remarks at you over the invisible fence. Detroit should go the way of The Love Canal. Vacate and nuke it. Wait. Nuke it first then survivors vacate. Oh well. Oh, and sterling ban for life for racist remarks. Are you going to ban Snoop poop dog for his remarks?? 
Apr 29, 2014 10:03AM
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Can I get a machine gun license if I buy one of these foreclosures???
Apr 29, 2014 7:19AM
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If this deal is at all interesting to you keep in mind that
a) you must not drive a car at all especially one good looking one
b) you must not have any valuables in your home
c) you must not wear nice jewelry
d) you must never smile or look like you have a good life
or....you will suffer haha and now with the bankruptcy they don't even have extra cops (which youll need) or extra ambulances (which youll need as well)...good luck bidding!

Apr 19, 2014 5:27PM
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if you in stall new water heater, expect it to be stolen with 2 days....and if your white, the black kids will throw rocks through the windows when you leave.
Apr 19, 2014 12:35PM
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I think that Detroit's problem is similar to that of many large cities.  When you cram too many people too close together for too long, large groups of them will eventually go crazy.  I have always advocated that many people should move out of the city to less populated areas.  There is a lot of country out there where people have room to breathe, and they often find they are happier and less prone to conflict.
Apr 19, 2014 7:27AM
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Since no jobs there in Detroit, I think it's good for all the senior people to retire there...so cheap.
Apr 19, 2014 6:22AM
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We never get to comment on Obummer any more....wonder why?
Apr 19, 2014 6:20AM
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who in their right mind would move to Detroit? even if they GAVE those houses away, you would have to build an 8 foot fence around the property with razor wire on the top, and have an arsenal inside to protect your self and your property...as there is NO POLICE FORCE AVAILABLE, NO FIRE DEPT TO PUT OUT FIRES, AND NO LIGHTED ACCESS as streetlights are out of the question out there....no thank you Detroit....change the name to GANGLAND and just fence the whole town off...bulldozing it would just drive the cockroaches to other places AND WE DONT WANT THEM!
Apr 19, 2014 4:49AM
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The land alone has to be worth $1000. If the house gets destroyed you'll still be ahead.
Apr 19, 2014 4:24AM
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Watch hardcore pawn on tru tv if you want to meet your new neighbors.
Apr 19, 2014 4:23AM
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Who the heck wants to live in the ghetto? I wouldn't even move in for free!
Apr 19, 2014 1:21AM
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One of the more intelligent articles I have read where they actually detail the problems with $1K homes in bad neighborhoods.  The $1K home is not a carrot it is a caveat especially for the uninformed. 
Apr 19, 2014 1:16AM
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As with any politician once they get in office their promises go out the window and the dollars flow into their pockets.  This happens regardless of party or race.  Obviously areas overrun by welfare loving people are going to be the worst areas and get the worst politicians because decent working people do not want to live in bad areas along side the deadbeats who have made welfare and crime a way of life.
Apr 17, 2014 11:02PM
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Would you buy a $1,000 house in Detroit?


No...Detroit is a lost cause; it went bankrupt for a reason. "Detroit" needs a culture turnover; I'm not willing to be a part of it. "Detroit" can swim or sink on its own; no more bailouts.

Apr 17, 2014 10:30PM
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I like how the survey answers in themselves create controversy. MSN at their finest. I am surprised we don't have to go to Bing to get the vote results and to vote.

With that being said. I would purchase one with out any other debts tied to them. I am not going to purchase someone else's debts. If it sold for 1000 or even 10000 without any further obligations it would be a good deal. The other issue would be the location of the home itself. The history of the neighborhood, and the local conditions of the neighborhood. The conditions of its infrastructure.

Of course there are a few other items to consider in the purchase as well. but you get the idea.

So it is not just a yes it is a great deal, no it is to much work, I don't know and what ever the other one was. It could be yes, no or maybe.

Apr 17, 2014 10:18PM
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funny, the same white folks who claim there is no more racism are the same ones who get behind a computer and say the most stupid racist ****. a black man can't even buy a house in west virginia without  getting shot on his on property in broad daylight buy a crazy old white man. i can't even walk in a mall in certain areas without some sorry white woman clinching her purse like i want that ****. last time i checked white people just as ****ed up as black people. how yall the majority but the most depressed ( made up disease by white people to medicate themselves). yall keep yall kids doped up on some made up **** conditions. my kids is too hyper, medicate him, no bitch make him sit the **** down. every white person i have ever worked with on jobs was on some kind of pill or meth. white guys on my job make more money then me but running to the supervisor about why my check bigger than theirs. work overtime bitch and quit looking in my desk at my paystubs. nosy mutha****as
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Ok. Remove all the thug trash who beat up an innocent white guy, who checked on a dumb kid whom walked out in front of his car, and you've got a deal.
Apr 17, 2014 7:45PM
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This poll tell the story of what has happened to America. Voted – No too much work 43%.

Voted – yes good deal 18%.

Less than 1 in 5 are willing to bust a nut and make something positive happen. 43% say too much work….give me something for nothing and undoubtedly are flaming liberals. Funny, 43% is very close to the number of voters putting Mr. progressive  into the Whitehouse


Apr 17, 2014 6:58PM
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How about we do this, have the mayors of Detroit, Cleveland, South Chicago etc. Go on TV and say all welfare payments will stop in 5 days.  Then have border cities like El Paso  promise to pay all the welfare benefits and provide free housing.  Then when all the blacks head south to the " promised land ", just herd 'em across the border and close the gate.
Apr 17, 2014 6:13PM
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Interesting, they are going to sell 16,000 homes at a rate of 1 per week. And its only open to people there.

Are'nt these the people in the same area that lost these homes ?? And are'nt the rest of the tax payers picking up this tab for bankruptcy ???

 

I wonder when they will  figure out that at the rate the article says there going to sell these houses, it will take over 307 years.  Oooooooooops

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