Where You Should Be Buying Real Estate: Detroit????

The Detroit metro area has the distinction of being #2 in the nation in foreclosures (only Miami has more). We all know Detroit’s problems. Jobs are gone. Unemployment is high. The state of Michigan is in a recession.

And the housing market is brutal. Nothing is selling. Foreclosures are pushing down prices in nearly every neighborhood.

Detroit is a “dying” city. Or is it?

It has long been my view that as the climate changes, Americans will not longer be so eager to move to the deserts of Arizona and Nevada but instead will eagerly be eying the Great Lakes region for both its plentiful water and food.

There’s a reason, after all, that the Indians prospered in the Great Lakes region and why the earliest settlers came in droves. Chicago, after all, was nothing more than a swamp, literally, only 150 years ago.

Some investors are making a bet that Detroit will recover in the next decade. They’re buying houses on the cheap. Do you have the guts to do it?

From the Detroit Free Press:

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.

How cheap is it? Houses can be had for $5,000 to $10,000 (yes- that’s the TOTAL price.) Even in the “best” neighborhoods in Detroit, four bedroom vintage colonials can be had for $150,000- $200,000. You can’t even pay for the materials to build that house anymore at that price.

According to the article, 80% of sales in the city are now being bought by investors.

Are they foolish or are they smart?

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.

Are the California and other out-of-state buyers simply lured in by the belief that these houses are incredibly cheap without understanding the market? Perhaps.

It’s hard not to get lured in. Check out this house on Craigslist. Priced at $344,900. Bank-owned. Six bedrooms. In Grosse Pointe Park (nice Detroit suburb.)

Detroit: City of the Future?