City Of Detroit - Going Bankrupt?
Auditor General for City of Detroit talking about inevitable bankruptcy of City of Detroit. (You can read the orginal Detroit News story here!)He said it is not a question of if it will happen or not but rather when it will happen. I wonder if anybody who is drinking the Kool-Aid of Downtown revival is reading this newspaper story. Speculation is rampant that the story is politically motivated because of its timing so close to the elections in the city.
Well may be it is – may be it is not – but here is the cold hard fact about it – the City of Detroit is in the hole for around $336 Million.
On one hand you can buy ridiculous amount of real estate in Detroit, dollar by dollar – smart money does says that Detroit is one of the few remaining major metropolitan Downtowns left not touched by fairy tale of Downtown Revival Fairy.
They quote similar stories of downtowns in Atlanta, San Diego, Cleveland and Baltimore as rust and gloom giving away to glitter of the green kind.
The nays Sayers say Ha! Nothing is going to change because the powers that be don’t want anything to change. It is all smoke and mirrors. What side are you on? Should you buy Detroit as a whole or not? Is there a Downtown revival in play or not?
What will happen to the city property values if a bankruptcy is declared? I think the play could be made for Detroit properties but you have to be cautious on where are you buying the houses at? It is a big city and roads can change on your running 1-mile in either direction.
So what a real estate investor could do should do if they are looking to buy foreclosures in City of Detroit? My advice is this:
1. If you don’t know your way around the city – I recently talked to somebody who is buying a 50 unit building in Detroit. onversationally I asked them if the building was in East Side or West Side of Detroit? They had no idea what I was talking about. If you don’t know your way then don’t do it or partner up with someone who does.
2. Don’t buy 5 properties at once, which seems to be the case for almost everybody doing business there. It is easy to be seduced by the equity part since the properties are so cheap and God help anybody who does not want to become Trump by next Monday.
Buy one, fix it, deal it and then do another one. A $20,000 check that has your name on it is better than a $100,000 paper profit which is not in your bank. The situation in the city is in flux at least till the Mayoral election and even after that watch and sees what happens. One deal is manageable and could always be soldout to somebody. 5 Houses require a good marketing system.
3. Don’t take major rehab projects especially if you are weekend warrior. Fire damaged, extensive mold, roof caved in – you should not be doing these anyway but right now, when a project like this will take you five months to finish it is really a bad idea. You want in and out.
4. Avoid expensive areas in Detroit like Palmer Wood, Rosedale Park, Sherwood Forest, and Indian Village – where house prices are above $300,000 and property taxes are in the sky. It will be harder to deal houses when property taxes are $15,000 per year.
You have to find somebody who not any qualifies to pay the mortgage but has no problem paying $1200 / month property taxes in a city whose schooling system would probably force them to send their kids to private school
In a nutshell – play in cautious if you want to. The money is good enough to take on some risk but you want calculated risk and not heads on foolishness, which seems to be the operating mission of many.
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