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The median home in Detroit fell 39% to $7,000 in January compared to a year earlier. Yes, it’s cheaper now to buy a house in the Motor City than it is to buy a car.
It got me thinking. What does a $7,000 house look like. I asked Stanley Inges that question a few days ago. Inges, a 58-year-old Realtor in Detroit, says he bought 8 foreclosed homes with cash in the past year in the Schoolcraft/Grand River area, on the west side of the city. All of the homes were brick and the prices ranged from $1,000 to $14,000. And of course, each of these homes required significant work. At this price range, homes aren’t in move-in condition. The $1,000 home required $18,000 of work. He had to replace all the radiators in the $14,000 house because they were stolen by vandals. But that home has 8 bedrooms on two levels and a three-car garage.
He’s living in a 3-bedroom home with a new roof that he purchased from a bank last year for $6,000. He put in about $10,000 to redo the kitchen and bathrooms and he says it’s beautiful now. Check out this photo of his living room, which is equipped with a pool table:
He’s renting out a few of these units for $700 a month, he said. But he says he’ll really make money when the market turns around and home prices start to climb again.
“I want to save money and buy some more houses,” Inges said. “One day I’ll be a millionaire. I’m on my way.”
Many out-of-state investors have come into the market to do exactly what Inges is doing. They are buying up houses with cash and filling them with tenants. But it’s not necessarily as simple as it might seem. Marion Tindle, a Realtor in the Detroit suburb of Farmington Hills, cautioned that there are risks associated with buying rental properties in Detroit.
For one thing, it’s hard to find reliable tenants in a fast-deteriorating economy. Home prices are falling in part because Detroit has a staggering 20% unemployment rate. And it’s possible to get stuck with a vacant house that requires high tax payments and other fees, she said.
Tindle, whose coverage area includes Detroit and its suburbs, says it makes more sense to pay $30,000 for a decent house in a more stable suburb such as Oak Park than to buy in the city.
“You might spend money fixing up a place in Detroit and then you could just be sitting around a while until you find decent renters,” she said.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.