Are you a risk taker?? Try Detroit

5 Replies

Hey guys... I think ink Detroit might be worth the risk. I read on CNN that the city will begin auctioning off houses from the over 16,000 tax default homes it has: with auction prices starting at $1,000. I also went to the auction website to read more.. The caveat though is that you have to be a resident of Michigan or have a business registered to do business in the state. Another important caveat which I think will spurr growth, development and employment is that all buyers have to show proof of plans to rehab within 30 days of closing and then proof of occupancy within 6 months or else the government reclaims the property. The idea here is that when you buy a property and set out to rehab, you're assured that the guy next door will also be doing something to get his place rented in 6 months.. So it triggers a chain reaction of construction work and the job that come with it. You are also not liable for back taxes on any property

I'm seriously considering Detroit.. Its a high risk, high ROI type of deal...

Your thoughts guys?

I'm also a strong believer that the motor city will bounce back... Make no mistake

@Ikenna Okafor I agree it's a high risk move. But let's consider a few things...

This auction has received national coverage. Therefore, it's highly unlikely these homes will sell for $1000. If it has several riverboat gamblers here in BP forums talking about it, it will almost certainly draw many more like minded folks across US, Europe and Asia.

Therefore, you're looking at an acquisition cost several times above the initial bid... which is nothing but a marketing gimmick to lure optimistic buyers in.

If you win, you're looking at significant rehab costs. When I saw these properties mentioned in the forums last week, a 30 second glance shows they require a minimum of several 1000s in rehab work. Some between 10k-20k in my opinion b/c these have been sitting empty for years and thieves have stripped them of any & all components they can re-sell.

Ex) Furnace, duct work, copper plumbing, re-shingling roof, floors repaired & refinished, possibly new electrical if the inspectors are watching you closely (which they WILL BE from the website's verbage), mold and/or asbestos remediation, etc., etc.

Then throw in the cosmetics.

Ex) Ext & int paint, paint/buy new cabinets, carpets or staining/sealing hardwoods, new appliances, new countertops, new bathrooms, etc.

Of course, you may be able to salvage certain things and just give them a clean & polish, but all of these repairs will add up faster than you may anticipate.

Unless you're on site and managing/doing the work yourself, throw in other variables of:

> are contractors overcharging me?

> can I save money by doing it myself?

> are contractors dragging their feet?

> are my materials being stolen (by workers or nightly thieves)

> is my inv prop secure so thieves won't steal the new $3000 furnace I just installed going to be stolen 3 days after I paid for it?

Not saying this to dispel your enthusiasm, but trying to give you an idea of what the final spreadsheet may look like along with the risk management concerns of what a city like Detroit requires.

@Matt C good analysis.. I had come up with a very similar list of things that could go wrong...

I think the requirement that limits bidders to MI residents will narrow the list. But in any case I think that if a lot of people show interest then that's a good sign folks are looking to invest...

I have a friend who I plan to partner with because he's on ground. He lives in Harper woods MI... 20 mins from Detroit.. And he says there are signs the city is coming back gradually. Chinese investors are buying up properties at very cheap price... mostly foreclosures

We're still doing our homework. The first of the open houses is today... My friend will be attending. He'll give me feedback and also take pictures of what's on ground...

.

Originally posted by @Ikenna Okafor :
@Matt C good analysis.. I had come up with a very similar list of things that could go wrong...

I think the requirement that limits bidders to MI residents will narrow the list. But in any case I think that if a lot of people show interest then that's a good sign folks are looking to invest...

I have a friend who I plan to partner with because he's on ground. He lives in Harper woods MI... 20 mins from Detroit.. And he says there are signs the city is coming back gradually. Chinese investors are buying up properties at very cheap price... mostly foreclosures

We're still doing our homework. The first of the open houses is today... My friend will be attending. He'll give me feedback and also take pictures of what's on ground...

.

well for one Harper Woods is 2 mins away from Detroit. You are getting some bad info from your friend. You will have to find good contractors willing to go into the neighborhoods. That right there will be a challenge.

I always hear about Chinese people buying all these homes. But I just don't see it.

The burbs are the place to be for the long run

I would not consider it unless I currently lived there and had lived there for many years to know the areas intimately... and I take a lot more risk than most investors.

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