Thousands of homes are going under the hammer at knock-down prices in one of the property sales of the century.
A record 22,504 homes are going to auction next month in Wayne County, Detroit, Michigan.
The homes were seized by the county after the owners fell in to arrears and failed to pay taxes for three years.
Michigan law lets county administrators foreclose if county taxes are not paid for 36 months or more. So far, Wayne County has foreclosed on more than 50,000 homes in the past three years.
Chief Deputy Wayne County Treasurer David Szymanski said: “It’s absolutely crushing the numbers out there but it’s a result of the economic downturn.”
Do knock-down prices make sense?
Bidders should register for the auction by September 7, 2012. The auction is online through www.treasurer.waynecounty.com. Prospective buyers have to pay a deposit of $500 to bid on a single property or $5,000 for multiple properties.
However, does paying a knock-down price for a derelict home make sense?
The average selling price for a Detroit home in July 2012 was $58,156 – a fall of 8.9%, or $5,698, compared to the first three months of the year and a fall of 12.3% compared to the same period last year.
Over the past five years, prices have slumped by 21.4%. The average selling price per square foot is $59 – down nearly 16% on last year.
So many poorly maintained and empty homes in Detroit should ring alarm bells for investors.
The reason why homeowners fell in to arrears and lost their homes was because they lost their jobs.
Buying blind can be costly
Detroit was Motor City USA – home of Ford and General Motors – but much car making has shifted from the US to the Asia Pacific rim and jobs have gone with them.
Earlier in 2012, the Financial Times warned that property investment companies suggesting homes at rock-bottom prices could be refurbished and let at yields of up to 16% a year were leaving investors high and dry with huge losses.
Buying a foreclosed property at auction, refurbishing and finding tenants at a distance is a risk for even the most seasoned investor.
Purchasing at auction means buying blind and paying up front in cash – you will not have a loan or mortgage because standard lenders will not have time to process the paperwork and the state of the home will probably mean you could only borrow a fraction of the value.
On top of the auction fee come legal fees, taxes and refurbishment costs.
If it sounds too good to be true, it probably is
Trusting builders to do the job properly when they are in your own house is hard enough – but when they are 12,000 miles away, keeping an eye on the work is impossible.
Flying out to view before buying and to check their work can add thousands more to the property costs.
The best way to check you are paying the right price is to have an independent valuation by a qualified surveyor and ask for:
- The current value
- The forced sale value at auction
- The likely cost of refurbishment and the value at the end of the work
- The likely rental price the property will achieve
Getting a solicitor to check the title is also a good idea before committing to a purchase.
Don’t forget, if a deal sounds too good to be true, it probably is – and never pay over any cash or commit to a contract without understanding your legal and financial obligations.
