Bryan C. Fleming

It’s funny to read magazines like Fortune or CNN Money and see your city listed as having the highest foreclosure rate in the country.  I just can’t help but think how many real-estate guru’s must be thinking “Wow, what an opportunity”.  It would seem this area would be an investor’s paradise.  But is it?

Well, let me share with you my experiences living here at ground zero of the great real-estate fallout.  Here are some things to think about before jumping into Detroit’s foreclosure game:

Buy Cheap sell Cheap – Just because you can scoop up a  $400K home for $300K doesn’t mean you’ll be able to sell it any time soon.  Seriously, homes are sitting on the market for over a year no matter how good the prices are.  A friend of mine is selling his $450,000 3,300 sq ft home for $300,000.  It’s a gorgeous home.  It’s been for sale for over a year.  There are simply no buyers. 

How much will the bank loose?  Most of these foreclosed homes have no equity in them.  They were financed at 125% of their ‘appraised’ value.  So the pay-off amounts are much higher than anyone would appraise the house for.  How much do you think the bank is willing to loose on a property?  Will you still get that killer deal?  I’m not too sure.

Home Appraiser’s are being sued.  What you say?  How can that be? When the bank finds out that they wrote a loan for $300,000 on a home that now sells for $200,000 they start asking questions.  They look to the person who did the appraisal as writing a ‘fraudulent appraisal’.  These guys are so afraid of being sued that their appraisals are now very conservative.  This adds more salt to the open wound.

Still think you can make a killing at it? 

Consider this, there are much fewer jobs in Detroit because of the mass Layoffs by the automakers.  People are leaving the area at breakneck speed.  Rumors have it that you “can’t get u-haul truck out of the state of Michigan for months”. So now you have more homes than people.  It’s not a seller’s market, but a paradise for the buyer.

I’m not a real-estate investor, but I have friends who are.  They are saying the best way to play the foreclosure game is like this.

Find someone at the brink of foreclosure.  Bail them out.  Write an agreement where they buy the house back from you a few years from now and rent it in the meantime.  You make money when they repurchase their house.  They keep their house. If they default, you just got the house at a killer price.

Is there a silver lining?  If you’ve always wanted to live in a castle you can do it here for a small fraction of what it would cost in other parts of the country.  There are many beautiful homes for sale at amazing prices.  Just plan on staying put for a while.

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