Can you imagine buying a single family house in a major metropolitan area – one with 4 major professional sports teams, major international corporations, and plenty of entertainment – for under $10,000? Perhaps even well under that figure? No problem. There is one city that has well over 1,000 listings within that price range. Even more interesting, recently a few have sold for less than a premium cup of coffee – one dollar!
The city where you can charge your house on a credit card (remember to pay it off right away!), is Detroit, Michigan. The good old Motor City now presents some absolutely shocking prices for single family homes. Yes, we’re talking about $1 homes in Detroit.
This is something that has captured my attention. Personally, I am not a native of Detroit or of the state of Michigan; in fact, my direct experience with Motown is centered around the 3 months that I was there on a professional assignment in the 1990s. During that time, I discovered an intriguing story: a once great, formerly prosperous city that was synonymous with American manufacturing might, had declined to the point of being downtrodden, crime ridden, and – surprisingly – neighborhoods full of interesting homes with nice architectural details.
The city has clearly had its struggles. The decline of Detroit has been well documented, and the city has seen better days. The population has dropped from over 1.8 million in 1950, to under 1.0 million in the 2000 census. Some people believe this figure will be determined to be around 850,000 in the 2010 census count. City neighborhoods have been abandoned, and home values have plummeted. This problem is not completely unique to Detroit; while it might be the most publicized example, this general situation can be applied to other markets. Further
Here’s the question: While a tragic disappointment for many, does this real estate market offer opportunity for others?
Investors have been purchasing homes for a fraction of what they were worth at one time. There are plenty of articles and stories that you can find through a Google search that document this phenomenon. While plenty of people are moving out, there are people that are buying for investment purposes, and some that are buying simply to live at a very low cost of living. Some are urban “pioneers”, like artists, who see this as a unique opportunity.
It is an interesting proposition. I have the following questions, after researching this situation:
1. What are the chances of any kind of stability coming to that metropolitan area, in light of its dependence on one industry, whose companies are struggling?
2. What will transpire with the city’s possible agenda of “shrinking”, to reduce the populated footprint in an effort to cut public service costs?
3. What are the possibilities of the area seeing an influx of new residents from elsewhere – say, immigrants – who could take advantage of the existing housing stock in the city?
4. What are the costs and risks associated with renting a home in such an area?
5. How can an out of town investor safely and profitably purchase and subsequently rent homes there?
6. Ultimately, is the real estate market there headed down even further? In other words, is the situation there so bad that these potential investments are fool’s gold?
While Detroit’s situation has some unique elements to it, there are other markets in the US that have seen precipitous drops in recent years – Phoenix, Las Vegas, Miami to name a few. These markets present opportunities with their own set of questions.
What do you think about the viability and potential of investing in a city like Detroit, which has been devastated by economic trends? What about the potential of the warm-weather markets that were hit very hard by the real estate downturn?