Detroit’s $5,000 HUD Homes: Killer Investment or Money Pit?
Want to own a million dollar home for $100,000? How about a $300,000 property for five bucks? Check out Detroit. After the auto manufacturing industry took its business overseas, home prices have taken a nose dive.
While thousands of laid-off workers are fleeing the city, a few brave investors have decided to start buying up property. Much of the city is in shambles: streets are neglected, crime is rampant, and homes are vacant and deteriorating. However, some risk-takers speculate that the city will see a rebirth in coming years.
The plan is definitely risky. There’s no guarantee that Detroit will recover in the next decade – or ever.
Buyers are pointing to past examples of city regeneration: some parts of Washington D.C. for example, have made a complete 180 degree recovery in the past 15 years. A “bad-neighborhood” Washington D.C. home that sold for $7,000 in 1988 could easily sell for $307,000 in 2008. New Detroit investors hope that their property purchases will do the same. By purchasing houses on the cheap now, they hope to become the millionaire real-state moguls of the future.
The $5,000 Home
Just how low can home prices go? Realtor.com lists over 20,000 homes for sale in the city alone. 137 are priced at less than $1,000. 3,500 are priced at less than $10,000. Over 15,000 are listed at less than $100,000. (Yes, those prices are accurate – no typos).
The problem is that many houses are practically destroyed. The majority of the lowest-priced properties are uninsurable and will require extensive rehabilitation to bring up to code. Many of the other homes need thousands of dollars in repair. For investors, this type of purchase can be risky.
Government Foreclosures
One way to mitigate risk is to buy HUD foreclosure homes. When a homeowner defaults on an FHA-insured loan, this government agency becomes the new owner. HUD sells foreclosed homes auction-style, in order to recoup some of their loss.
While HUD homes are sold “as-is,” there is some benefit to buying through the government. First, HUD auctions display a property condition report. Instead of making a blind choice, investors can use these reports to learn about any damage in the property. It covers just about everything: the plumbing, the roofing, the kitchen appliances, etc. Buyers should do their own walkthroughs and have a formal home inspection, but these reports make a good starting place. (See also: How to Evaluate HUD Properties).
Since HUD homes are sold via auction, investors can make low-ball bids. HUD generally won’t accept bids for thousands below their already-below-market-value starting prices. But, bids between 85% and 88% of the list price are almost always accepted.
Another added benefit: many HUD homes are eligible for (203)k financing. Most traditional loans will only cover the appraised value of the home. (203)k loans, on the other hand, will cover the value of the home plus additional money for repairs. The loan amount is based on the estimated home value, post-repair. This is just about the only way to get a loan for home repairs bundled with your home loan. It’s a tempting package-deal for buyers, particularly when so many Detroit homes are in dire need of a contractor.
Take a Tour
Want to know how far your money can take you? Probably a lot further if you’re home shopping in Detroit. If you choose a “bad neighborhood” you could get a house for close to nothing (no, seriously, there are $1 houses). Of course, your neighborhood will be really, really bad. If you choose one of the nicer areas, you can still get an amazing house at a huge reduction.
Check out these Detroit homes for sale:
$5
3 Bed, 1 Bath
1,151 sq. ft.
Realtor. com lists this 1,151 sq. ft. three bedroom, one bathroom home for $5. The listing makes it clear the home is sold “as-is.” In order to purchase, the buyer has to agree to making (probably extensive) repairs required by the city.
$19,636
5 Bed, 2 Bath
1,483 sq. ft.
Coming in at just $19,636, HUD offers this more visually-appealing property with five bedrooms, two bathrooms, and 1,483 square feet. Fortunately, this one is insurable. However, some repair will still be necessary.
$93,425
3 Bed, 1.5 Bath
1824 sq. ft.
Big spender? Try this gorgeous colonial-style home, listed by HUD for less than $100,000. It has three bedrooms, one and a half baths, and 1,824 square feet of space. Plus, it comes with two fireplaces, a large porch, and a finished basement. Not bad for a more kept neighborhood.
You can find more cheap Detroit homes on Realtor.com’s listings or on the HUD database.
Want to learn more about HUD foreclosures in Detroit and other states? Check out our HUD Foreclosure Guide and our State-by-State List of HUD Databases.