Rocket Mortgage, Detroit pledge $5M to rehab more homes
The Rocket Community Fund and the city of Detroit have pledged a total of $5 million to expand a program that renovates and sells move-in ready land bank homes.
In an announcement expected Thursday, the Rehabbed & Ready program, created by Quicken Loans and the Detroit Land Bank Authority in 2015, will expand into 10 neighborhoods across Detroit through the city's Strategic Neighborhood Fund. The goal is to develop a pipeline of at least 200 homes for sale.
“We are really thrilled about the opportunity to scale,” said Laura Grannemann, vice president of the Rocket Community Fund, the philanthropic arm of Quicken Loans' Rocket Mortgage. “And over the last five years, we’ve really proven out the model that when you invest in properties that were formerly publicly owned in strategically located places, you can not only eliminate blight, you can also make sure that sale of that home has ripple effects that are felt by all of the homeowners in that neighborhood. That’s really what we’re all about.”
The Rocket Community Fund is contributing $2.5 million, part of the Rocket Community Fund’s initial $150 million toward a 10-year, $500 million commitment to Detroit it announced late last month.
The city, with partner Invest Detroit, is investing $2.5 million through its Strategic Neighborhood Fund, a city initiative revitalizing 10 areas in the city with the help of philanthropic dollars.
"I love the way that the city is collaborating with the Land Bank to provide housing opportunities that are actually affordable to people in fantastic neighborhoods around the city of Detroit," said Donald Rencher, Detroit's group executive of Housing, Planning and Development. "I'm always appreciative of Quicken, who always seem to be supportive of a lot of our initiatives to increase neighborhood vitality and also housing opportunity for people in the city."
Quicken Loans founded the program with an initial $5 million in 2015, and since then the Detroit Land Bank has rehabbed and closed on the sale of 85 homes, with 40 more in the renovation pipeline. Other partners in the program include The Home Depot.
The Rehabbed & Ready program, one of several programs the Land Bank runs, began in four west-side Detroit neighborhoods, which were chosen due to their poor housing stock and an appraisal gap that made it difficult for potential buyers to finance a home following the housing crisis. Those neighborhoods are: Bagley, Crary/St. Mary’s, College Park and Evergreen/Outer Drive.
In 2013, fewer than 375 mortgages were originated across the city and the median sales price was less than $10,000, officials said. The program set out to rehab homes and provide comparable sale prices that buyers could use to access financing and equity.
The average cost of a property and renovations is $114,540 and the average sale price is $97,711. The Rocket Community Fund covers the loss.
"Being able to be a loss leader going into a neighborhood early on, fully rehabbing a home to a price point that allows other people to come behind and have a comp in their neighborhood has been an essential part of our strategy since we started," said Detroit Land Bank Authority Executive Director Saskia Thompson. "I feel the program has proven its value."
Before expanding the program, the Rocket Community Fund commissioned the University of Michigan’s Ginsberg Center to study whether its efforts were paying off.
The study found that during the program's first three years, median sale prices grew 11.5% more per year in Rehabbed & Ready neighborhoods than in neighborhoods without the program.
"It was validating to see what we thought was happening was truly happening," Thompson said.
It took a philanthropic effort, including selling rehabbed homes at a loss, to jump-start mortgage-backed sales in neighborhoods, said Chris Mueller, a professor with UM's Ross School of Business and the study's lead author.
"Once that happened several times then appraisers and banks are able to start identifying what a market value is for a fully renovated home,” he said. “And once that starts happening then private investors can start investing again. And more mortgage -backed buyers can start getting mortgages for surrounding houses in that neighborhood.”
Mueller said that a neighborhood becomes economically self-sustaining once the median sale price is more than $50,000, and when 50% of sales are backed by mortgages. Mortgage rates grew 5.6% each year in Rehabbed & Ready neighborhoods reaching 42.2%, nearly twice as much as the city overall at 21.6%., the study found.
Veronica Johnson, property rehabilitation operations manager for the land bank, said demand is strong for renovated homes in Detroit. It takes about 50 days from the time the completed home is listed for sale to the closing, which includes the time it takes for the buyer to secure financing.
Johnson said there is a need for more general contractors and specialized contractors, including landscapers and residential cleaning companies. The program includes a partnership with Emerging Industries Training Institute, which provides skilled trades education.
"We need to produce way more houses to account for the demand that's out there right now," she said. "People want move-in ready houses. People want to live in the neighborhoods that the program is currently invested in."