Rich neighborhood, poor house

It's easy to see why Jeff and Heidi Jackman coveted a home on Three Mile Drive in Grosse Pointe Park, Mich. Manicured lawns and gracious mansions flank the wide boulevard, which is less than a mile from the shores of Lake St. Clair but still just a short commute to Detroit. So when a large brick Tudor on the prestigious street hit the market for just under $500,000 — a fraction of what most mansions in the area sell for — the Jackmans jumped at the chance. The deal got even sweeter once they learned that the home, complete with maids' quarters and hand-painted bathroom tile, used to belong to the Kmart founding family and once served as a crash pad for The Black Eyed Peas.

But the once-posh mansion wasn't exactly ready for move-in day. Overgrown shrubs masked much of the yard. The hardwood floors looked as if they'd been ravaged by wolves. The kitchen had white laminate countertops (coffee-cup stains included), there was peeling paint in the former ballet studio, and the laundry room appeared better suited to clean a stray cat than a dress shirt.

"It needs some TLC," says Jeff Jackman, a local business owner.

Have you heard? Apparently the housing market is in pretty bad shape. But while we've all seen the endless stream of doom-and-gloom stories, a few brave — and possibly delusional — souls are finding an unexpected opportunity in the midst of the real-estate apocalypse: the chance to buy in the ZIP code of their dreams. As the crisis pushes even well-heeled homeowners toward foreclosure or short sales — delinquencies on $1 million-plus homes rose steadily in the past five years, according to data firm RealtyTrac — affordable properties are starting to pop up in neighborhoods once off-limits to all but the 1%.

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For bargain hunters, these homes could mean access to the best schools, use of posh local amenities and simply a chance to call that storybook block home. "We'd rather be in a community that we love than in a house we love," says Theresa Lee, a homeowner in New Jersey who recently bought a fixer-upper and plans to spend the next several years renovating.

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Of course, some of these steals are on the bargain rack for a reason. As the Jackmans discovered, many are worse for wear — particularly those that have been abandoned for some time. Even though there's always been the teardown opportunity in the nicest neighborhoods, those buys are no longer the guaranteed profit-makers they were in the bubble years. Then there are the property taxes, which aren't cheap in high-end communities, because they pay for the first-run movie theater in the town park or a separate police department. And just because your new address labels read "Aspen, Colo." or "Greenwich, Conn." doesn't mean you'll make the cut for the country club waiting list or get invited to join the local Junior League. It all raises an obvious question: How low can you go to live the high life in town?

Cherry Hills Village, Colo.

Cherry Hills Village, one of Denver's ritziest suburbs, makes its boundaries quite clear. While the street signs in Denver are typically green, those in Cherry Hills are a bright cherry red. So when our guide, agent Bryan Realph, unlocks the door of a small, $28,000 home that doesn't seem to fit the neighborhood bill, he pauses to prepare us for what may come. "I'm up-to-date on all my shots," he says.

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Before we have a chance to think about our vaccination status, he opens the door, and we're hit by the putrid smell of mold. The rotting wood floors creak as we walk through the living room, and the bathroom is missing an entire wall, revealing cracked two-by-fours and a slew of debris. We venture to the basement but turn around when a rickety step starts shaking. The good life this is not.

To be fair, this 890-square-foot pad is technically just outside Cherry Hills Village. And aside from the obvious step of tearing it down, we later find out it would take approximately $70,000 to bring it up to neighborhood code.

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But there's another option several streets over: a Frank Lloyd Wright-style home in Cherry Hills that's going for $500,000 in a short sale, which compares nicely against the town's average list price of $3 million. It has four bedrooms, a sleek layout and fantastic views of the Rockies. Sure, it's less than 20 feet from a noisy road and needs a new carpet in the living room, but we think it's quite a steal — until we go to leave and the doorknob breaks.

Trapped for a few minutes, reporter and agent are left to ponder: At least the $28,000 home had a working doorknob.

Grosse Pointe, Mich.

When we pull up to a home in Grosse Pointe Woods with a freshly painted gray exterior and a tidy white fence, we're perplexed by the ultralow, $30,000 price tag. Looks can be deceiving. Inside, the home is half-finished — "or more like a quarter-finished," quips agent Michael Fellberg. The plumbing below the rudimentary wet bar is exposed, and the upstairs never made it past the framing stage. But the future owner will have to work with what's there: With the lot measuring one-tenth of an acre, Fellberg concludes the home can't be torn down because there's not enough land to build bigger. About $15,000 worth of work would finish the place off, he says, and it could serve as a nice starter home for a family looking to buy in the school district.

Speaking of the school district, if that's all a buyer is coveting, there's a way to get into Grosse Pointe schools without living in Grosse Pointe. According to local lore, when the school district lines were drawn, a sliver of Harper Woods, which abuts Grosse Pointe Woods, was included so some politicians' homes made the cut. The result: Home values in the Grosse Pointe school system often are 15% to 20% higher than the rest of the homes in Harper Woods.

Of course, if what really matters is proximity to exclusive communities, there's always the $15,000 option in Detroit, about half a mile from Grosse Pointe City — that is, if you can handle a home that's been stripped of appliances and has sewage pooling in the basement.

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Palm Beach, Fla.

In a town where valet-parking lines routinely fill up with Bentleys, the esteemed residents of Palm Beach don't even blink when a mansion with a 4,000-square-foot master suite comes on the market for a cool $74 million. But with housing prices still at least 20% below their peak, there's plenty of room for the Lilly Pulitzer-clad crowd to score a cheap pad.

On the southern end of Palm Beach, a slew of condo buildings that popped up about four decades ago stand along the shore. Today, those condos cater to run-of-the-mill retirees or second-home owners looking for a place to crash when they want to soak up the sun. And a crash pad is about all this $32,000 studio in Tropicana Gardens ends up being; its total square footage of 340 is smaller than most Palm Beach foyers. (The former owner found a setup that worked like a charm: His armoire acted as the headboard to his bed.) Space isn't the only restriction; owners must be 55 or older, and they can't rent the unit or own pets.

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But tolerating life in a shoebox doesn't mean you'll score an invitation to one of the more than 100 galas thrown during the season. After all, as Palm Beach local columnist David Desmond recently wrote, people aren't socially accepted on the island until they have $85 million, a Bentley, an Aston Martin and a Bugatti. So much for social climbing.