Detroit’s housing slump is attractive to investors

April 3, 2008 by · Leave a Comment 

Don’t take our word for it, check out this recent article from the Detroit Free Press. The facts are the facts; now is the right time to buy investment property in Detroit!

Remember, we have access to the direct bank lists and our homes are all pre-mls unlike the majority of the garbage out there.

Full article at Detroit Free Press

Detroit’s housing slump is attractive to investors

Some buyers look to get 100 or more

Investors from as far away as Hong Kong and Hawaii are coming to Detroit to make their fortune buying foreclosed homes in bulk.

“This is a millionaire’s market,” said Jeremy Burgess, a 28-year-old investor from Washington state who has been living in Detroit for the past year. “I feel like I’m driving through the city and stopping to shovel diamonds in the back of my truck.”

His wife, Jeanna Kiehle, and partner Jared Pomranky formed Urban Detroit Wholesalers to scour the city for houses they can fix and rent. The idea is to generate cash flow until the market improves, and they then can sell the houses. They own 38 houses now and close on 15 more before the end of the month.

Some buyers are looking to buy larger numbers of homes, perhaps 100 or more at a time.

People tuned in to the Detroit area’s distressed housing market say the majority of sales now are to investors, often in bulk deals.

Sales were up dramatically in Detroit in February, rising 49% from a year before, and realty watchers say foreclosure properties played a key role in the increase.

Some see significant risk to investors who could get low-end properties without being familiar with pitfalls of the market.

“Real estate is not a commodity. You have to know what you are buying,” said Mark Nagy, a broker and consultant for RE Investments Inc. in Southfield. “What typically ends up in bulk sales is stuff that has sat on the market for more than six months.”

Banks see Detroit as a sore spot, Nagy said, because they cannot move the properties and there are so many.

“Bulk buying will become more commonplace by the end of the summer,” Nagy said. “Right now, so many properties in Detroit are like a hot potato. Whoever ends up with it will be crushed.”

Burgess and others say there are plenty of good properties.

Smith Kitporka, 28, an investor in San Jose, Calif., said he has been buying Detroit foreclosures for two years, often paying as little as $10,000.

“No war-zone houses or anything like that. Just good houses in good neighborhoods,” he said.

Burgess said he can pick up an $85,000 house in Detroit for $20,000 to $30,000 these days. Listings on Fannie Mae’s Web site show many Detroit foreclosures for less than $25,000.

Last year, metro Detroit led the nation in foreclosures. Of the 10,342 homes on the market in Detroit as of Wednesday, 3,355 were bank-owned foreclosures, according to Realcomp Inc. And in the tri-county area, 7,104 bank-owned foreclosures were listed out of 47,095 homes on the market.

Eddie Peters, 44, an asset manager for 15 years at various banks who left GMAC’s Homecomings Financial office in Berkley last month in a wave of layoffs, said bulk sales are picking up.

When banks were getting 10-20 foreclosures a month, they would list them with local agents and recover what they could. But now, as foreclosure volume has risen, banks must sell in bulk so they don’t get overwhelmed with property, Peters said.

“The bulk sale is an acceleration of what is normally done,” he said. “About 80% of the houses sold now are being bought by investors.”

Banks contacted for this article either declined comment or did not respond.

Peters said lenders don’t want to be identified with the subprime loan collapse that hit last year and rippled through the U.S. economy as lenders tightened all forms of credit.

The prices in metro Detroit — mainly within the city limits and nearby suburbs — are so low that investors from more expensive markets such as California, Nevada and Florida feel certain they can grab bargains here.

“Right now, people are buying for the thrill because prices keep going down,” said John Graham, a real estate agent with Keller Williams in St. Clair Shores who works primarily with investors. “The rental market is going to be crazy good. That’s what these out-of-state people are seeing.”

Burgess and his partner started out by buying foreclosed houses, fixing them up and then selling for a profit, a practice known as flipping.

But after the subprime loan crash last year, potential buyers had trouble obtaining loans and flipping essentially ended.

The new trend is to buy properties cheap from banks in bulk and then sell the properties to investors who hope to collect rent until the market improves.

Burgess said homes in Detroit’s better neighborhoods are renting for $850 a month. His company manages the properties for the out-of-state investors.

The investors are banking on a Detroit recovery in the next 5-10 years.

Drew Sygit, vice president of the Lending Edge in Bloomfield Hills, said that most of the investors he talks to in Michigan are trying to be wholesalers and sell property to other investors.

“The Michigan people are scared of Detroit,” Sygit said. “It’s not a sure thing. They have to worry about inspections, copper stealing, equity stripping. It’s challenging, but there is a big reward.”

Tarik Dinha II, 30, of Clarkston is the owner of Urban Development Solutions Group LLC and Deeds4Cash.com. He buys 20-40 houses at a time from banks for “pennies on the dollar” and then sells them as fast as possible.

But making those connections with the right people at the banks is not easy.

None of the investors interviewed for this story would divulge which banks they work with.

But Dinha said he has made the right connections and has contacted banks with a list of properties for which he can pay cash within 72 hours.

“I usually buy 40 at once, but anything over 10, 15 is a bulk deal. The key thing is to be able to not get stuck with a bunch of junk,” he said.

More bulk sales are combining hard-to-move property in several states that have been hit hard by foreclosures, said Marshall Mandell, a realty agent and foreclosure expert who deals only in bank-owned properties in metro Detroit.

Nagy, the Southfield broker, said he saw a bulk listing for 256 properties valued at nearly $30 million in five states, with 105 of the properties in Michigan. The deals can be difficult to close, as investor Travis McKee, 35, of Pontiac found. He made an offer recently for clients on 195 houses owned by a bank, but the deal fell apart.

“I haven’t completed any bulk deals yet. I’m still interested,” he said.

Letitia Patterson, a realty agent and foreclosure specialist at RCH Brokerage in Southfield who also runs DetroitCashDeals.com, said banks must prove to auditors that they are getting a reasonable return for each property, she said.

“It is very few brokers who deal with the banks,” Patterson said. “It is really sexy and exciting to say we are buying 100 houses for pennies on the dollar. The deals often don’t close.”

Nagy said that in many cases, there’s still a disparity between what banks want to get for foreclosed properties and what investors are willing to pay.

In many cases, a bank today wants 55-65 cents on the dollar for a suburban property, yet investors want to pay 40-45 cents on the dollar, he said.

In Detroit, the bank may want 30-35 cents on the dollar, and investors want it at 20-25 cents on the dollar.

“Those two points have not met in the middle yet,” Nagy said. “It’s an evolution process. It’s going to evolve that bulk sales will increase.”

Contact GRETA GUEST at 313-223-4192 or gguest@freepress.com.

The bulk craze, by the numbers

Investors are buying foreclosed Detroit homes in large numbers, hoping that the real estate market takes a positive swing and they can make a hefty profit.

$10,000
What some Detroit homes are selling for.

80%
Estimate of houses sold in Detroit being bought by investors.

One-third
Homes listed for sale in the city that are bank-owned foreclosures. It’s 15% in Wayne, Oakland and Macomb counties.

About

DetroitProgress.com is in the business of real estate investing in low-middle income housing within the Detroit area. We will be actively marketing both our wholesale and retail homes on the website along with updates on our progress. Our long term goals will be to provide low income housing to investors for the purposes of rehab, fix and retail single family homes, and acquire a large portfolio of residential homes.

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