There’s a lot of buzz about cheap real estate in Detroit: how much there is, how to get it, and who actually should.
But while there are lots of true stories and tall tales about getting a house for as little as $10, there are some very real and lasting consequences to investing in real estate anywhere — and especially in Detroit.
So we talked to Nicole Curtis, Michigan native and host of HGTV’s Rehab Addict (currently filming in Detroit), and Craig Fahle, director of public affairs for the Detroit Land Bank Authority, about what it really means to buy a house at auction in the Motor City.
TL;DR: You can’t just pay $500 and move right in. But you can buy a $500 house, invest some time and money, and have a great property for $30,000-plus (which is a lot less than anywhere else in the country).
1. A $500 house never actually costs $500.
At best you’ll have to invest about $10k in repairs to make the home livable. At worst, some of these homes can be in shambles AND have a value of –$40,000 because of back taxes, liens, water bills, and any number of other things.
2. There are multiple public agencies that run property auctions in Detroit.
The Wayne County Tax Auction is run by the Wayne County Treasurer’s office. Last year they sold over 24,000 properties online that had been in foreclosure, for a minimum bid of $500.
The Detroit Land Bank is a newer public authority that auctions three properties a day for a minimum bid of $1,000, plus closing costs and the current year’s property tax.
3. Houses get to auction when an owner fails to pay the property taxes or the mortgage for a set period of time.
For many Detroit homes, the first auction price is just the amount of liens and taxes owed on the house. If no one buys them then, they either go to a second auction where the prices start at $500 or they are given to the Detroit Land Bank where the starting price is $1,000.
4. A house can be foreclosed on and repossessed based on taxes the owner doesn’t even technically owe.
Low-income homeowners are often eligible for tax exemptions (like the Primary Resident Exemption and the Poverty Exemption), but to get them you have to do a lot of paperwork and know the deadlines, which not everyone knows about.
It’s a situation known as asymmetric information — wealthier or more educated residents of other cities can hear about and purchase these foreclosed homes easier than the owners can learn how to actually keep them.
This isn’t just a problem in Detroit, it’s a problem everywhere. And the city of Detroit is working on programs and materials to better educate homeowners and prevent foreclosure.
5. Depending on the auction, the $500 home you buy might still have someone living in it.
Which makes you not just a homeowner, but a landlord. And it’s now your responsibility to either be a landlord or kick out the current occupant, who is often the previous owner of the home. Of the ~60,000 houses facing foreclosure and auction in 2015 alone, around 20,000 are still occupied. But all homes auctioned specifically by the Detroit Land Bank are vacant at the time of sale.
6. You should visit the property you’re going to buy before you actually purchase.
The Motor City Mapping project is attempting to survey all the properties in Detroit to provide updated information on occupancy status, building condition, and more.
But there’s no guaranteed way to know the exact condition of the property and the lot unless you visit it yourself.
7. Even if it’s vacant, you can’t buy an auction home and move right in.
Vacant properties that have been in foreclosure are often in really bad shape, structurally and mechanically. There are missing doors, missing windows, holes in the roofs. Things like pipes and sinks and other fixtures have been stolen.
“These houses need roofs, they need mechanics,” Nicole Curtis of HGTV’s Rehab Addict, who has been rehabbing in the area for years, told BuzzFeed Life. “The idea of a home is there, but not much else.”
8. If you buy a house from the Detroit Land Bank, you have six months to get it up to code and occupied.
For historic homes you get nine months. Otherwise you risk losing the property and the money you paid for it. That means you’ll need to have the cash to fix up your fixer-upper ASAP. If you show a good-faith effort toward renovation, they will consider giving extensions, but they want legitimate landlords or homeowners, not absentee investors.
This rule is the biggest difference between the DLB and other auctions. “We’re trying to discount the speculators and the people just buying up properties and sitting on them to wait for them to go up in value,” Craig Fahle, director of public affairs for the Detroit Land Bank, told BuzzFeed Life. “We actually want someone to fix it up and rebuild the value of the neighborhood.”
9. But Detroit is not a place for quick-turnaround investment properties.
Now that so many of Detroit’s property auctions are held online, Curtis and Fahle said there are a lot of potential investors that buy homes site unseen and then can’t follow through with renovations or sales.
“A lot of outsiders think this is the gold and the Wild Wild West, and then they’ve bitten off more than they can chew,” said Curtis. “It takes me about six months to get a house done, and that’s with all of my [TV] resources and my checkbook. For a regular never-done-this-before person trying to do the work themselves and make it their own house, they’re going to need two years [to make it livable].”
10. And absentee landlords or investors are not welcome.
The Land Bank discourages remote investors in many ways, including not letting anyone buy properties in bulk and making sure each house is actually rehabbed and occupied before allowing another sale. What they really want is actual occupants.
“We want individuals who have been renting, or people who are thinking of moving back into the city or who are moving to the city for the first time,” said Fahle. “We want them to fix them up and live in them. That’s the goal.”
And according to Curtis, some people are doing just that: “This is the perfect time and place for people who want to own their own home and can’t afford it in other markets,” she said. “You take your N.Y. or L.A. cost of living to Detroit and you could work one day a year.”
11. You’ll need a lot of time and/or money to fully rehab a house.
Rehab costs in Detroit average $75–$100 per square foot, and that’s just for bare-bones repairs, and it doesn’t include anything structural like a roof or foundation. According to Curtis, if you’re going to rehab a house you need to have either a) the cash to put toward the rehab or b) the skills to do it yourself.
“If I get a house thats going to resale for $100,000, I’m probably going to put in $85,000 upfront and still put in a lot of hours of labor,” Curtis said. “For most people if they only have $1,000 to spend on an investment property, they don’t have the finances to rehab it. It’s really about taking stock and knowing your skill set.”
12. But even houses in bad shape have architectural details worth saving.
“There are so many architectural wonders in Detroit that have simply been abandoned,” Curtis said. “The plumbing and heating system might be gone, but what I look for is the thing that makes this house unique: the classic architectural details, artisan-made pottery fireplaces, stonework.”
13. When renovating: If it can kill you, you should probably hire it out.
That’s Nicole Curtis’ expert advice, anyway. Even for seasoned DIYers, some house-related renovations (like heavy electrical work, roofing, etc.) should be done by professionals. Ripping up a floor or replacing tile? DIY your heart out.
14. You can accidentally buy an auction house.
It happened to Curtis. “I was meeting with the Land Trust board and the mayor and playing around with the website and then I bought it,” she said. Luckily Curtis is an expert with the bank account to back it up, but it just goes to show you can’t be too careful with auctions (and online purchases!).
15. If you’re willing to put the time and money in, you can find yourself in a lovely home (or making a pretty decent profit).
The first house sold by the Detroit Land Bank sold for $86,499. It was purchased for $10,500, and the owner put $35,000 into the renovation, which means he made a profit of $41,000 in less than a year.
16. Any house you buy is a real piece of Detroit’s history.
“At one point in Detroit’s history, normal people never had the option to touch, buy, look at, or even walk through some of these properties, because they were for the very rich elite. Some of these historic neighborhoods were home to very important people in the history of our country in the 1900s; it’s not uncommon to find a house that a Ford or an Edison lived in [at auction],” Curtis said.
Curtis moved her show to Detroit because she wants to live there herself, and is considering living in one of the auction houses she’s currently fixing. “Also,” she said, “we wanted to show people: This could happen anywhere, anytime. Detroit was a New York, Detroit was a Chicago. There was so much money and it just went away.”
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