The Real Costs of the $500 Detroit "Dream" Home

Detroit Land Bank
$50K flips (or $80K Land Bank flips, for that matter) and multi-unit apartment houses and high-rises aren't the only avenue to real estate investment in the Motor City. Between the Detroit Land Bank Authority's auction homes, and work done by celebrity flippers like Nicole Curtis, whose current project is Brush Park's Ransom Gillis house, there are as many ways to invest in Detroit real estate as there are types of Detroit houses to invest in. The real questions are: Should I invest? and What's in it for me? University of Michigan economics Professor Peter Allen teaches aspiring investors, many of them working on the smallest possible scale, to look at the numbers and make informed choices. Allen usually leads classes for community members in Ann Arbor, but this week, began working in Detroit, teaching a 4-session, monthlong set of free Saturday morning classes in Detroit sponsored in part by U of M and the Skillman Foundation, a Detroit nonprofit that works with local school kids.

What many potential small-scale investors fail to realize about the fabled $500 home is that there are many issues involved in turning it not only into livable space, but into something that yields profits. Nearly 100,000 people in metro Detroit occupy foreclosed homes, for example, so new owners often have to begin the process by evicting people. A very dedicated investor might spend $1000 on the building, but then go as high as $100K in roofing, wiring and restoration.

Still, Allen told students—and NPR—that the return on a very modest home, even with a $21K investment in remodeling and construction, can be respectable, given the low mortgage cost and the city's rising rents. In Detroit, $500 may buy a house, but it takes so much more—money, time, love and hard physical labor—to make these properties anybody's homes.

·Land Bank House Wants $86K [Curbed Detroit]
·Ransom Gillis Ready for its Closeup [Curbed Detroit]
·Buyer Beware of Foreclosed Porperties [Detroit News]
·Professor Teaches Crash Course in Real Estate Investingg [NPR]
·Detroit Land Bank Auctions [Detroit Land Bank]
·4229 Sturtevant [Detroit Land Bank]