Buyer beware of Detroit’s $500 foreclosed properties
Sixty-two thousand properties have faced foreclosure in Detroit this year over unpaid taxes. About half will likely be auctioned for $500 apiece this fall.
Buying homes or vacant lots for $500 might sound inviting, even in a city as troubled as Detroit. After all, look at New York: Decades of crime and decay gave way to a real estate boom that has gentrified even outlying working-class neighborhoods. Properties that sold for thousands in the bad old days are now worth millions.
But there are no guarantees. “The opportunities are there but there are huge challenges,” said Dang Duong, a law and business student at the University of Michigan who has bought and renovated several dilapidated homes in Detroit. “If you’re under the impression you can buy a property for $500 and wait a few years until Detroit has recovered, that’s going to be difficult.”
Here are five things to consider before buying property in Detroit:
House may be occupied
Are you prepared to evict former owners, longtime tenants or even squatters? Loveland Technologies, a mapping company that has surveyed every property in Detroit, estimates that half the properties facing foreclosure are occupied, housing about 100,000 Detroiters.
Critics question the morality of buying occupied homes and fear the program may increase Detroit’s homeless population. They say many owners stopped paying taxes because they weren’t getting city services in return. Others say those who failed to pay taxes contributed to Detroit’s troubles.
Darin McLeskey, who moved from an engineering career to buy, sell and develop real estate in Detroit, says sometimes “people want out. They can’t afford the home or are tired of the city. Mentally they may have moved on, and sometimes physically they have moved on.”
In one case, he made a “cash for keys” deal with a squatter in an uninhabitable home: “I gave him $300, he signed a document. It was cheaper, easier and more amicable than an eviction.”
An expensive $500
Demolishing dilapidated properties and building from the ground up can be cheaper than rehabbing. But some buyers choose renovation to save historical architectural details found in much of Detroit’s early 20th century housing stock: turrets, gingerbread trim, pillars and woodwork amid broken windows and sagging rooftops.
Duong bought a house in Detroit for $1,100 and spent $100,000 on roofing, wiring, plumbing, appliances, drywall, flooring and new bathrooms and a kitchen.
He speaks reverently of preserving the 100-year-old maple floors and wanted a quality renovation to attract good tenants. It’s located in a privately patrolled neighborhood near a hospital, so he sees it as a good investment.
But beware of hidden costs and scams. Properties may come with liens, water bills and back taxes totaling thousands of dollars, in addition to renovation costs.
It’s also not unusual to hear of homes sold to buyers in other states and countries, with purchase prices rising with every flip.
Absentees not welcome
If you buy a home through the Detroit Land Bank, you have six months to bring it up to code — nine months for historic properties. The policy discourages speculators from buying and leaving property unattended.
Duong got a call before one of his projects was complete, but he said “if you are a legitimate landowner, they are easy to work with. They want people to either renovate or sell to someone else who can do it. That goes a long way to removing blight.”
Looting and vandalism are also major problems. Homes under renovation risk having fixtures ripped out and tools stolen if the property is not lived in and secured. McLeskey moved tools into a townhouse and returned the next morning to find the door knocked down with a battering ram.
It helps to buy in populated areas. The more neighbors you have, the more secure it is.
Combating blight also means maintaining vacant lots. McLeskey mows nearly all of his 40 vacant lots in the summer.
Improved services, but …
Garbage pickup, snow removal, water service, and police and fire department responses have improved in the last 18 months, but may still be less reliable than what you’d expect elsewhere.
Are you willing to wade into controversy? Supporters say foreclosure sales help the city recover by forcing homeowners to pay up or move on. Auction buyers then decide what’s salvageable.
Detroit sprawls over 140 square miles, and officials would like to concentrate the population of 690,000 into a sustainable area by demolishing abandoned buildings in far-flung neighborhoods. Theoretically, new property owners will pay taxes, which will support city services, and property values will recover.
But critics say foreclosures may increase blight. Repossessed properties often don’t sell at auction, and they deteriorate faster once occupants leave.
Loveland Technologies video opposing Detroit foreclosure plan: www.youtube.com/watch?v=zi6uoRNtVyQ
Detroit Land Bank (public authority handling auctions): auctions.buildingdetroit.org/Home
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