$500 US Detroit homes may be no bargain due to squatters and unpaid taxes

An abandoned house in Detroit, one of thousands of the city plans to foreclose this spring to auction off for $500 apiece. Just because it's boarded up, doesn't mean noone is living there.

Foreclosed homes may need extensive upgrades and come with hidden costs

The Associated Press Posted: Mar 11, 2015 2:47 PM ET Last Updated: Mar 11, 2015 5:09 PM ET

An abandoned house in Detroit, one of thousands of the city plans to foreclose this spring to auction off for $500 apiece. Just because it’s boarded up, doesn’t mean noone is living there. (Beth J. Harpaz/ Associated Press)

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 neighbourhoods. 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.

1. The 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.

Detroit has the highest property taxes of any U.S. city and the market value that sets the level of taxes is based on a years-outdated assessment. For long-time Detroit homeowners, many of them marginally employed or jobless, that can mean they face years of back taxes they can’t hope to pay.

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.”

2. The hidden costs of updates and back taxes

Demolishing dilapidated properties and building from the ground up can be cheaper than rehabbing. But some buyers choose renovation to save historic architectural details found in much of Detroit’s early 20th century housing stock: turrets, gingerbread trim, pillars and antique woodwork amid broken windows and sagging rooftops.

Dilemma Over Squatters Detroit

Demolition crews found a middle-aged woman living on the second floor when called to tear down this house in southwest Detroit. (Carlos Osorio/Associated Press)

​Duong bought a house in Detroit for $1,100 and spent $100,000 on roofing, wiring, plumbing, appliances, drywall, flooring, and new bathrooms and kitchens. 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 neighbourhood 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 totalling 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.

3. No absentee landlords

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 neighbours you have, the more secure it is.

Combatting blight also means maintaining vacant lots. McLeskey mows nearly all of his 40 vacant lots in the summer.

4. City services not quite up to standard

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.

5. Detroit’s uncertain future

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 (down from 1.85 million in 1950) into a sustainable area by demolishing abandoned buildings in far-flung neighbourhoods. Theoretically, new property owners will pay taxes, the revenue 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.

Need more information or advice on #mortgage_qualification, contact the The Ray McMillan Mortgage Team

#mortgagesmadesimple

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: