9 ms·

Mystery Bidder Bids $3.2M for 6000 Detroit Homes

81 points by coreymgilmore 12y ago

gatsby 12y ago
Sounds like a possible Dan Gilbert project. Context: http://www.forbes.com/sites/joannmuller/2014/09/29/gilbertville-a-billionaires-drive-to-rebuild-the-motor-city/ http://www.forbes.com/sites/joannmuller/2014/09/29/gilbertvi...
- rmason 12y ago
  Very doubtful. Gilbert has only bought skyscrapers in the downtown area. He bought the buildings for what it would cost to rent that much space for a year in Manhattan. Lately Gilbert has been outbid at auction by Chinese investors so he's exhibited financial discipline. This mystery bidder is paying $500 per house and it would cost ten times that much on the low side to tear down the house. Somebody needs a large chunk of land and for some reason wants it in that specific area. Maybe Piston's owner, Tom Gores, is planning a downtown stadium?
  - gatsby 12y ago
    Tom Gores is a good guess, but I think the homes are too distributed to assemble a sizable plot of land. Besides, if you want to buy acreage in Detroit, it's easier to buy an couple old industrial lots than to pay $30m to tear thousands of homes down. Besides, it's hard to imagine a stadium in the middle of a residentially zoned neighborhood. Here's why my money is on Gilbert: http://nextcity.org/daily/entry/hey-dan-gilbert-you-cant-bulldoze-every-abandoned-building-in-detroit http://nextcity.org/daily/entry/hey-dan-gilbert-you-cant-bul... > "Business owner Dan Gilbert has bought more than 30 buildings with 7.5 million square feet of office space in Detroit’s central business district." > "Now, Gilbert wants to get involved in Detroit’s neighborhoods." > "Part of that deal is a new task force faced with the indomitable challenge of figuring out what to do with Detroit’s tens of thousands — no one really knows the exact number, some say 78,000 — abandoned buildings. " > "Gilbert is on that task force" > "'To get the neighborhoods going, we’ve got to take down the 78,000 or so — we don’t even know the exact number of structures that need to be taken down, mostly houses,' Gilbert said..."
  - genwin 12y ago
    What would the bidder do about the houses they won't own, on that land? It could be prohibitively expensive to buy the remaining houses.
drcode 12y ago
Pretty easy to see how this'll turn out: Some moderatley rich person with access to a 10% down payment of 3.2M is taking a gamble and is in way over their head... Just wait, within a year they will lose ownership of all these properties in bankruptcy and they'll be back in the hands of the city.
- DanBlake 12y ago
  Loans dont work that way in 2014. There is no bank in their right mind who would grant a loan to buy this, even at 90% down. The 2007/8 crash changed how banks and loans operate. If anyone lent any money, it would be private investment- But those guys generally dont fuck around for sub 10mm deal size. This is one dude using his own/biz's money/
- swalsh 12y ago
  I'm guessing you've never actually gone through the process of getting a mortgage?
- couchdive 12y ago
  Almost all public auctions I know of do not allow loans at all. You usually need a cash downpayment to even bid, and proof of funds in bank to participate.
- breitling 12y ago
  Real estate investor here. The buyer probably paid all cash...these sort of deals require that you pay cash, so very unlikely that they leveraged against these properties. However, they will likely have raised capital with some other portfolio of properties as collateral. So not all of this is coming from his savings. I see others talk about how difficult it is to get a mortgage, etc. Let me just say from personal experience that it is not difficult to get a business loan (which is what this buyer will need, not a "mortgage"). Especially if he already has an established business.
- drcode 12y ago
  OK, for some reason all the replies to this post feel it's really important what percentage of the capital the person is personally putting in. That seems kind of besides the point of my argument.
therobot24 12y ago
Land grab? Maybe. But at least someone is buying the property. The prices are very low for a reason, very little demand. I believe a renovation plan needs to be in place within 6 months of purchase. I very much doubt it'll happen for all 6000 homes, but will probably happen for at least some portion of them. I really hope the city doesn't twiddle its thumbs following up on these.
- interurban 12y ago
  The main reason this bid is surprising is if no one bought these properties at this county level auction, they would show up cheaper at a city auction.
- IkmoIkmo 12y ago
  True, sort of. But the contrary point is that they want to discourage e.g. people from New York buying some home for $10k out of pocket, not doing anything with it and hoping to flip it in 20 years, as in any big city a plot like that alone is worth $50-60k. Demand is great, but you really want to get people to actually live there, too. Haven't heard of any requirements for a plan, can you elaborate? Afaik, you own the plot and can leave it shitty if you want as long as it's not a safety hazard. > Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in. Found this, seems to only apply for a certificate of occupancy (meaning you could let it sit as a long-term investment hoping the rest of the city improves to the extent your property value rises enough to make renovation an easy profit) not sure if it's what you're referring to.
  - therobot24 12y ago
    I'll have to find it a bit later, but i remember reading when Duggan announced the auctions that a plan for remodeling/renovation/etc needs to be set within 6 months. The idea being that you can waive back taxes if you plan on actually doing something with the property other than letting it sit, however I can't remember if it only applied to planned occupancy or across the board...
valarauca1 12y ago
There is a huge market for international property speculation especially with American property. The owner will likely sell each house for a tidy profit (to another investor), the new owner of only 1-5 houses will turn around and try to sell those back to Americans, realize s/he got had. TL;DR international property scam References http://www.nuwireinvestor.com/articles/waterfront-properties-in-detroit-an-investment-opportunity-61484.aspx http://www.nuwireinvestor.com/articles/waterfront-properties... http://www.crainsdetroit.com/article/2013102/NEWS/310209983/ http://www.crainsdetroit.com/article/2013102/NEWS/310209983/ http://michiganradio.org/post/no-chinese-investors-arent-buying-detroit-they-do-have-eye-motor-city http://michiganradio.org/post/no-chinese-investors-arent-buy... P.S.: If the parcels are located semi-close to the new arena complex it maybe a serious investment, but I doubt it.
- watty 12y ago
  Can you explain the "scam" part?
  - deelowe 12y ago
    Evidently, speculation == scam now. Also, I'm one of those people who buy 1-5 properties from bigger investment firms. My return (with rentals) varies between 17-20%. So, no, I don't feel had.
    - talmand 12y ago
      Depends on how the speculation is defined for the investment. If the speculation is that one can buy low and sell high, then no problem. If the speculation is that one can buy low and convince others with falsehoods to buy high, then that's a problem.
    - sedachv 12y ago
      Where in the country are you that you're realizing those kinds of profits?
      - 12y ago
atwebb 12y ago
So, things like this always interest me, maybe it's long term living in a similar city or just idealism. Anyways, I've always wondered when these places will get so cheap, and so readily available that a single, long term interest, entity will buy a large portion of a major city. At some point, even with the tenants, tear downs, clean up, and taxes, land with that amount of infrastructure around it has to bottom out right? Back of the napkin stuff and some assumptions: 6000 parcels (so assuming separate pieces of land) average of .25 acres a piece (sourced from no where except where the dots lie on the maps in relation to sizes I'm used to seeing and accounting for some larger properties) Gives you 1500 acres, or ~2.3 sq miles. That's in a city that's total 138 sq miles. Again, assuming the article figures are accurate it will cost ~27M total to buy and deal with those 6,000 properties. So for 27M dollars you can own about 1.7% of the entirety of a major metropolitan city. That's 1500 acres. It's not the most desirable, it's surely a pain, you may be able to recoup some cost on some properties or by selling scraps, it may cost $50M in total, who knows. I just think it's interesting you can by one very large house on the coast, or 1500 acres in a still major, and formerly powerhouse, city.
- maxerickson 12y ago
  Clear development land in Wayne county is selling for $25,000 an acre (and more, I looked a bit for large lots, which should at least somewhat mitigate location). At those rates, you could maybe expect a nice return with a simple tear down and wait strategy.
- sedachv 12y ago
  > you may be able to recoup some cost on some properties or by selling scraps All those houses have been scrapped for copper and stainless steel already. Detroit has a huge scrapper problem - you cannot leave a property sitting for any amount of time before someone breaks in and starts scrapping the wiring and copper water pipes. There are even scrapping gangs. A friend of a friend went to the Herman Kiefer Hospital shortly after it closed in 2013. He was escorted out at gunpoint by scrappers - they had a few guys posted there 24/7 with firearms and walkie-talkies to keep other scrappers from coming in.
- robotresearcher 12y ago
pearjuice 12y ago
It is not unlikely Airbnb goes wild and tries to get feet on the ground in Detroit and expanding its legal reach by being able to verify as institutonal home exploitation company.
waterlesscloud 12y ago
Half the homes need to be torn down, and 2000 lots are already empty. So it's just 1000 actual homes that may be re-inhabited, and 5000 empty or soon empty lots. That could be pretty tough to deal with, whatever your plan. Probably not dense enough without re-building to avoid the blight returning again. All those empty lots would hurt. So some huge money will have to be poured into it to accomplish much.
porter 12y ago
"Be fearful when others are greedy and greedy when others are fearful." - Warren Buffet
- deleted 12y ago
  [deleted]
swalsh 12y ago
I was recently buying some reclaimed lumber, it was quite expensive. It occurs to me that 6000 homes depending on how old they are might be worth that much in materials alone.
- Havoc 12y ago
  I was under the impression that most US houses in that price range will be cheapish wood and drywall? Not sure you'd get much reclaimed lumber worth anything out of there. Still - innovative idea.
  - waterlesscloud 12y ago
    These are older houses, most of them likely made from much better materials. Still, with the kind of weathering an empty house would get in Michigan, a lot of it could be totally ruined.
    - atwebb 12y ago
      > most of them likely made from much better materials. Unfortunately lots of lead paint as well. It is still a very real issue.
    - kyleblarson 12y ago
      You mean like asbestos insulation and lead paint?
- sedachv 12y ago
  I spent a few days checking out abandoned houses in Detroit this July. Most of them were built before the 70s and have plaster-on-slat walls with lead paint on top. Because of the heavy rains the wall studs and floor joists are rotten. I remember one house where the floorboards were so wet and rotten they didn't break through when I stepped on them, they sagged through like mud.
fiatmoney 12y ago
It's only possible to have a "mystery bidder" because real estate is exempt from money laundering regulations. I'd bet 2:1 it's shadily acquired money from overseas looking to be stashed out of the reach of local anti-corruption agencies.
- alanpca 12y ago
  It's likely billionaire Dan Gilbert...
- cpwright 12y ago
  You also need to sink another ~$24 million into the property to demolish the houses, and if you don't make sufficient progress it will be repossessed. That's gonna be a bunch of jobs, so I'm not sure Detroit would care. I also would think that you would probably want to have more liquid property, or at least something that might possibly generate some marginal income.
  - sp332 12y ago
    It can't be "repossessed" if you own it. (And it wouldn't be repossessed anyway since the bank probably doesn't want it back :p)
    - fiatmoney 12y ago
      It can be seized (or a lien placed) by the city or state for not paying property taxes, or fines from lack of upkeep.
    - michaelbuddy 12y ago
      If you don't pay property taxes on a house you own outright, the local govt can and does seize it. Repossessed isn't the right word but in the end, it would be resold and the gov't would make more money from it as well as new annual cycles of taxes. If you buy property and squander it or not keep it up to zoning regulations you can also lose property you own to the local govt. It's not repossessed by a bank, it would be more like a land seizure.
    - 12y ago
uptown 12y ago
The one thing they're not making any more of in this world is land. $3.2M isn't much money for a very large number of people in this world.
- elmuchoprez 12y ago
  The one thing they're not making any more of in this world is land. Huge portions of the US remain undeveloped or under-developed. Land isn't really in as short of supply as some would have you believe. $3.2M isn't much money for a very large number of people in this world. $3.2 is just the purchase price. The article says the buyer would be looking at another $25-million to demolish the structures that can't be salvaged. Then you have upkeep and taxes. I'm sure the actual total monetary commitment is still within reach for many, but it's not nearly as low as $3.2.
  - uptown 12y ago
    Agreed. But really $25 million isn't that much for many people either. There's a handful of single-family houses in my town that sell for that much.
  - talmand 12y ago
    Land can potentially be in short supply in areas people want to be located, especially land locked cities.
    - smeyer 12y ago
      Right, but once you start talking specific locations, you get back to the fact that land isn't really in short supply in Detroit these days.
- pessimizer 12y ago
  Yup. There are plenty of people who can sit on an illiquid 3.2M investment for an indefinite period of time. Barring a dirty bomb, nuclear war or government collapse, I can't see 6000 lots in Detroit for $3.2M not being worth 10x that in 30 years.
seanmccann 12y ago
The value of one single house is basically negative because of the bad neighborhood, bad surrounding homes, high crime, etc. By buying a larger number of contiguous homes, you can greatly reduce those problems. Sounds like a fantastic idea.
- d4vlx 12y ago
  There is some contiguousness but they are mostly spread all over the city. Take a look at the red properties on this map (zoomable): https://whydontweownthis.com/2014/mi/wayne/detroit#15/42.3472/-83.1043 https://whydontweownthis.com/2014/mi/wayne/detroit#15/42.347...
  - larrys 12y ago
    "but they are mostly spread all over the city" 6000 homes spread out also means you can also create a mini company town by essentially luring people (for a new company) to the city and giving them a choice of different properties, renovated and ready to go with efficiencies gained by having so many to deal with. (Similar to when, say, Levittown was built (all in one area of course but same concept with construction).
    - at-fates-hands 12y ago
      This was my idea as well. I also wondered if the owner of the land would attempt to join adjacent lots to create larger plots of land - which could then be drawn together further. I'm not a city planner and am not very well versed in municipal zoning laws in Detroit so I wonder if its even a possibility.
    - ams6110 12y ago
      Many if not most of the houses are beyond renovtion. A fair amount probably have fire damage (arson in Detroit is legendary). Sitting for years with broken windows, holes in the roof, etc. leaves them rotted shells
      - 12y ago
Havoc 12y ago
Smells like an investment banking scheme to me. "Buy When There's Blood In The Streets"
e40 12y ago
I wonder what the property taxes, per year, will be on the 6000 parcels. And, since many cities allow you to challenge the stated value, it could be very expensive, in time, to challenge 6000 parcel values.
- abbottry 12y ago
  Property taxes in Detroit are surprisingly expensive.
  - freehunter 12y ago
    When you look at it, they have a massive amount of infrastructure for a huge city that lost of a lot of taxable individuals in a relatively quick timeframe. Unless they can move everyone to a more densely populated area of the city and shut down the infrastructure, they have to bear the cost of being a huge city without the tax base of a huge city. That's why tax is so expensive. Well, that and massive corruption.
    - mynegation 12y ago
      I wonder if anyone in Detroit calculated pros and cons of "defragmentation": moving people to several designated areas and shutting down infrastructure in vacated blocks. I understand that US is not North Korea and it is easier said than done, but still would be an interesting calculation.
      - danielweber 12y ago
        The people that have stuck around thus far tend to be really attached to their current location. If you get them to up and move, they might as easily move to another city (maybe where their kids are) then to the new district.
        tempestn 12y ago
        Which might still be worthwhile, or at least worth considering if things are truly as far gone as they appear from those blight maps. If the city is having to maintain water, power, sewer, etc. to an entire neighborhood for a couple of homes, having those people move to a different city and shutting the entire neighborhood down would probably save a bunch of money.
bussiere 12y ago
He may just want to play simcity IRL ...
eevilspock 12y ago
It seems obvious to me that too high taxes are the real problem here. If the tax rate makes owning a piece of property unsustainable, then no matter what your political-economic beliefs you have to agree, right? I say this as a supported of property taxes (as a stand-in for ground rent owed to the true owners of the land, the commons. Read up on Georgism or Geolibertarianism to understand what I'm talking about).
specialp 12y ago
I hope whomever bought it was not planning on reselling the properties piece by piece on ebay and other places. A lot of these types of homes are sold that way to someone that is like wow I can buy a house for $1500! Then they realize there is nothing they can do with it, and it actually costs them a lot of money in taxes and upkeep, and abandon it. Hey they could have had a sports stadium for just $500k more: http://www.nfl.com/news/story/0ap2000000360831/article/pontiac-silverdome-auction-nets-500000-in-sales http://www.nfl.com/news/story/0ap2000000360831/article/ponti...
erok 12y ago
Each home = $500. There is more than $500 of materials in each home. Aveerage home has 200-300lbs worth of copper. Each home gets destroyed. I am calling it right now.
- abbottry 12y ago
  This assumes that each home has not already been stripped of copper, which is not the case. Most of these homes are bricks and wood.
  - erok 12y ago
    Which you can also resell. You could even scrap the ovens for money and water heaters. There is far more motivation to wreck it than upkeep it. All those houses are goin doooown.
    - abbottry 12y ago
      I don't think you understand. There is NOTHING in these houses. Its old, rotten wood, and crumbling brick. The purchase of homes in Detroit is NOT to sell or repurpose ANYTHING. I work downtown, and drive through these neighborhoods every single day to avoid traffic (thanks Google!).
      - erok 12y ago
        Brick can be recycled but I see what you are saying. And hearing that people are getting killed pulling live wires... That would definitely imply that copper is epic loot in Detroit right now.
  - freehunter 12y ago
    I grew up in Michigan, and I can say with a good amount of certainty: any house in Detroit that is unoccupied does not have a single thing of value left in it, especially copper. Even some places that are occupied have had their copper stripped from them, sometimes live wires that results in the death of the thief. EDIT: Some links. Copper theft is a big deal in Detroit. City of Detroit borrowing a page from scrappers and thieves by selling old copper wire to boost Detroit's finances. http://www.detroitnews.com/story/news/local/wayne-county/2014/10/21/detroit-bankruptcy-trial/17650679/ http://www.detroitnews.com/story/news/local/wayne-county/201... Thieves stole copper from functioning pumping stations, leading to massive flooding in Detroit recently http://detroit.cbslocal.com/2014/08/13/copper-theft-a-possible-factor-in-metro-detroit-freeway-flooding/ http://detroit.cbslocal.com/2014/08/13/copper-theft-a-possib... Copper thieves caught in a sting on camera http://www.wxyz.com/news/local-news/investigations/copper-thieves-caught-on-camera http://www.wxyz.com/news/local-news/investigations/copper-th...
chovy 12y ago
Hacker houses! Turn Detroit into a tech meca
lovelearning 12y ago
I sure hope the buyer is doing so for altruistic reasons. [1] [1]: http://www.businessinsider.com/detroit-foreclosures-may-evict-150000-people-2014-10?IR=T http://www.businessinsider.com/detroit-foreclosures-may-evic...
tphummel 12y ago
OCP gathering property for "New Detroit"
- teddyh 12y ago
  You mean “Delta City”.
trhway 12y ago
>Everything is sold as is: The homes may lack furnaces or wiring and they may come with mold, tenants, or both. mold or tenants, they don't make distinction between them... Interesting that Detroit government still burdens these properties with extremely high taxes (thanks God and voters for prop 13 in CA :) even though the only service the Detroit government provides there is "foreclosure service". What are the chances that a buyer of huge amount of parcels can separate that area from the city?
- maxerickson 12y ago
  If I understand correctly, the voters of Detroit would get to decide about creating the separate area (I'm guessing it would require amending the city charter). I don't find it all that likely that such a thing would happen, but who knows.
- jmspring 12y ago
  Thank god for Prop 13? Oh jeez. You mean the fact that businesses can sit on commercial properties for more than either of our life times and not pay much more in taxes? Or the part where a family with a bunch of kids pays less in local property taxes, yet uses public resources more than a single individual who bought their house 5-10 years later? The idea of Prop 13 has merit, but the disparity it has raised and the hole this state has been dug into, not so much.
  - trhway 12y ago
    >Oh jeez. You mean the fact that businesses can sit on commercial properties for more than either of our life times and not pay much more in taxes? one can see how a minor adjustment made be made here :) Though as things work as it is, why risk breaking a working machine... >Or the part where a family with a bunch of kids pays less in local property taxes, yet uses public resources more than a single individual who bought their house 5-10 years later? if they bought at the same time, the family would still be using more public resources, wouldn't it? there are some minor flaws, yet anytime i see property taxes in other states i always grateful for that relict of direct democracy, ie. Prop system of CA, which allows voters to control at least the most important things, like real estate taxes. >the hole this state has been dug into, not so much. what hole? We're booming. Again.
650REDHAIR 12y ago
Detroit gets a bad rap. I've traveled quite a bit from 18-24- going coast to coast by car at least a dozen times. I always avoided Detroit because of the bad press it gets. This year Apigee hosted #apicraft in Detroit and it was AWESOME. I fell in love with the city. The outskirts are still rough, but Midtown to downtown was really, really good. The "opportunity Detroit" slogan everywhere paired with the local's can-do attitude makes me want to invest more time and energy into the city. I can't wait to go back!
- danielweber 12y ago
  Different parts of it are in different shape. There's also the utter bankruptcy that means someone's gonna get squeezed really hard sometime soon.
deleted 12y ago
[deleted]
huherto 12y ago
If I am allowed to make a wild guess(wishfull). It is the mennonites. They have a farming culture. They are very good at building their own communities and Detroit is located next to some of the largest fresh water lakes in the world. In farming fresh water is everything.
tempestn 12y ago
Does anyone know why the properties being auctioned off appear to be so randomly situated around the blighted areas? As others have commented, it seems like a developer could do a lot more with a contiguous (as much as possible) group of properties than with the same number spread across the city.

81 points by coreymgilmore 12y ago

Sounds like a possible Dan Gilbert project. Context: http://www.forbes.com/sites/joannmuller/2014/09/29/gilbertville-a-billionaires-drive-to-rebuild-the-motor-city/ http://www.forbes.com/sites/joannmuller/2014/09/29/gilbertvi...

rmason 12y ago
Very doubtful. Gilbert has only bought skyscrapers in the downtown area. He bought the buildings for what it would cost to rent that much space for a year in Manhattan. Lately Gilbert has been outbid at auction by Chinese investors so he's exhibited financial discipline. This mystery bidder is paying $500 per house and it would cost ten times that much on the low side to tear down the house. Somebody needs a large chunk of land and for some reason wants it in that specific area. Maybe Piston's owner, Tom Gores, is planning a downtown stadium?
- gatsby 12y ago
  Tom Gores is a good guess, but I think the homes are too distributed to assemble a sizable plot of land. Besides, if you want to buy acreage in Detroit, it's easier to buy an couple old industrial lots than to pay $30m to tear thousands of homes down. Besides, it's hard to imagine a stadium in the middle of a residentially zoned neighborhood. Here's why my money is on Gilbert: http://nextcity.org/daily/entry/hey-dan-gilbert-you-cant-bulldoze-every-abandoned-building-in-detroit http://nextcity.org/daily/entry/hey-dan-gilbert-you-cant-bul... > "Business owner Dan Gilbert has bought more than 30 buildings with 7.5 million square feet of office space in Detroit’s central business district." > "Now, Gilbert wants to get involved in Detroit’s neighborhoods." > "Part of that deal is a new task force faced with the indomitable challenge of figuring out what to do with Detroit’s tens of thousands — no one really knows the exact number, some say 78,000 — abandoned buildings. " > "Gilbert is on that task force" > "'To get the neighborhoods going, we’ve got to take down the 78,000 or so — we don’t even know the exact number of structures that need to be taken down, mostly houses,' Gilbert said..."
- genwin 12y ago
  What would the bidder do about the houses they won't own, on that land? It could be prohibitively expensive to buy the remaining houses.

drcode 12y ago

Pretty easy to see how this'll turn out: Some moderatley rich person with access to a 10% down payment of 3.2M is taking a gamble and is in way over their head... Just wait, within a year they will lose ownership of all these properties in bankruptcy and they'll be back in the hands of the city.

DanBlake 12y ago
Loans dont work that way in 2014. There is no bank in their right mind who would grant a loan to buy this, even at 90% down. The 2007/8 crash changed how banks and loans operate. If anyone lent any money, it would be private investment- But those guys generally dont fuck around for sub 10mm deal size. This is one dude using his own/biz's money/
swalsh 12y ago
I'm guessing you've never actually gone through the process of getting a mortgage?
couchdive 12y ago
Almost all public auctions I know of do not allow loans at all. You usually need a cash downpayment to even bid, and proof of funds in bank to participate.
breitling 12y ago
Real estate investor here. The buyer probably paid all cash...these sort of deals require that you pay cash, so very unlikely that they leveraged against these properties. However, they will likely have raised capital with some other portfolio of properties as collateral. So not all of this is coming from his savings. I see others talk about how difficult it is to get a mortgage, etc. Let me just say from personal experience that it is not difficult to get a business loan (which is what this buyer will need, not a "mortgage"). Especially if he already has an established business.
drcode 12y ago
OK, for some reason all the replies to this post feel it's really important what percentage of the capital the person is personally putting in. That seems kind of besides the point of my argument.

therobot24 12y ago

Land grab? Maybe. But at least someone is buying the property. The prices are very low for a reason, very little demand. I believe a renovation plan needs to be in place within 6 months of purchase. I very much doubt it'll happen for all 6000 homes, but will probably happen for at least some portion of them. I really hope the city doesn't twiddle its thumbs following up on these.

interurban 12y ago
The main reason this bid is surprising is if no one bought these properties at this county level auction, they would show up cheaper at a city auction.
IkmoIkmo 12y ago
True, sort of. But the contrary point is that they want to discourage e.g. people from New York buying some home for $10k out of pocket, not doing anything with it and hoping to flip it in 20 years, as in any big city a plot like that alone is worth $50-60k. Demand is great, but you really want to get people to actually live there, too. Haven't heard of any requirements for a plan, can you elaborate? Afaik, you own the plot and can leave it shitty if you want as long as it's not a safety hazard. > Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in. Found this, seems to only apply for a certificate of occupancy (meaning you could let it sit as a long-term investment hoping the rest of the city improves to the extent your property value rises enough to make renovation an easy profit) not sure if it's what you're referring to.
- therobot24 12y ago
  I'll have to find it a bit later, but i remember reading when Duggan announced the auctions that a plan for remodeling/renovation/etc needs to be set within 6 months. The idea being that you can waive back taxes if you plan on actually doing something with the property other than letting it sit, however I can't remember if it only applied to planned occupancy or across the board...

valarauca1 12y ago

There is a huge market for international property speculation especially with American property. The owner will likely sell each house for a tidy profit (to another investor), the new owner of only 1-5 houses will turn around and try to sell those back to Americans, realize s/he got had. TL;DR international property scam References http://www.nuwireinvestor.com/articles/waterfront-properties-in-detroit-an-investment-opportunity-61484.aspx http://www.nuwireinvestor.com/articles/waterfront-properties... http://www.crainsdetroit.com/article/2013102/NEWS/310209983/ http://www.crainsdetroit.com/article/2013102/NEWS/310209983/ http://michiganradio.org/post/no-chinese-investors-arent-buying-detroit-they-do-have-eye-motor-city http://michiganradio.org/post/no-chinese-investors-arent-buy... P.S.: If the parcels are located semi-close to the new arena complex it maybe a serious investment, but I doubt it.

watty 12y ago
Can you explain the "scam" part?
- deelowe 12y ago
  Evidently, speculation == scam now. Also, I'm one of those people who buy 1-5 properties from bigger investment firms. My return (with rentals) varies between 17-20%. So, no, I don't feel had.
  - talmand 12y ago
    Depends on how the speculation is defined for the investment. If the speculation is that one can buy low and sell high, then no problem. If the speculation is that one can buy low and convince others with falsehoods to buy high, then that's a problem.
  - sedachv 12y ago
    Where in the country are you that you're realizing those kinds of profits?
    - 12y ago

atwebb 12y ago

So, things like this always interest me, maybe it's long term living in a similar city or just idealism. Anyways, I've always wondered when these places will get so cheap, and so readily available that a single, long term interest, entity will buy a large portion of a major city. At some point, even with the tenants, tear downs, clean up, and taxes, land with that amount of infrastructure around it has to bottom out right? Back of the napkin stuff and some assumptions: 6000 parcels (so assuming separate pieces of land) average of .25 acres a piece (sourced from no where except where the dots lie on the maps in relation to sizes I'm used to seeing and accounting for some larger properties) Gives you 1500 acres, or ~2.3 sq miles. That's in a city that's total 138 sq miles. Again, assuming the article figures are accurate it will cost ~27M total to buy and deal with those 6,000 properties. So for 27M dollars you can own about 1.7% of the entirety of a major metropolitan city. That's 1500 acres. It's not the most desirable, it's surely a pain, you may be able to recoup some cost on some properties or by selling scraps, it may cost $50M in total, who knows. I just think it's interesting you can by one very large house on the coast, or 1500 acres in a still major, and formerly powerhouse, city.

maxerickson 12y ago
Clear development land in Wayne county is selling for $25,000 an acre (and more, I looked a bit for large lots, which should at least somewhat mitigate location). At those rates, you could maybe expect a nice return with a simple tear down and wait strategy.
sedachv 12y ago
> you may be able to recoup some cost on some properties or by selling scraps All those houses have been scrapped for copper and stainless steel already. Detroit has a huge scrapper problem - you cannot leave a property sitting for any amount of time before someone breaks in and starts scrapping the wiring and copper water pipes. There are even scrapping gangs. A friend of a friend went to the Herman Kiefer Hospital shortly after it closed in 2013. He was escorted out at gunpoint by scrappers - they had a few guys posted there 24/7 with firearms and walkie-talkies to keep other scrappers from coming in.
robotresearcher 12y ago

pearjuice 12y ago

It is not unlikely Airbnb goes wild and tries to get feet on the ground in Detroit and expanding its legal reach by being able to verify as institutonal home exploitation company.

waterlesscloud 12y ago

Half the homes need to be torn down, and 2000 lots are already empty. So it's just 1000 actual homes that may be re-inhabited, and 5000 empty or soon empty lots. That could be pretty tough to deal with, whatever your plan. Probably not dense enough without re-building to avoid the blight returning again. All those empty lots would hurt. So some huge money will have to be poured into it to accomplish much.

porter 12y ago

"Be fearful when others are greedy and greedy when others are fearful." - Warren Buffet

deleted 12y ago
[deleted]

swalsh 12y ago

I was recently buying some reclaimed lumber, it was quite expensive. It occurs to me that 6000 homes depending on how old they are might be worth that much in materials alone.

Havoc 12y ago
I was under the impression that most US houses in that price range will be cheapish wood and drywall? Not sure you'd get much reclaimed lumber worth anything out of there. Still - innovative idea.
- waterlesscloud 12y ago
  These are older houses, most of them likely made from much better materials. Still, with the kind of weathering an empty house would get in Michigan, a lot of it could be totally ruined.
  - atwebb 12y ago
    > most of them likely made from much better materials. Unfortunately lots of lead paint as well. It is still a very real issue.
  - kyleblarson 12y ago
    You mean like asbestos insulation and lead paint?
sedachv 12y ago
I spent a few days checking out abandoned houses in Detroit this July. Most of them were built before the 70s and have plaster-on-slat walls with lead paint on top. Because of the heavy rains the wall studs and floor joists are rotten. I remember one house where the floorboards were so wet and rotten they didn't break through when I stepped on them, they sagged through like mud.

fiatmoney 12y ago

It's only possible to have a "mystery bidder" because real estate is exempt from money laundering regulations. I'd bet 2:1 it's shadily acquired money from overseas looking to be stashed out of the reach of local anti-corruption agencies.

alanpca 12y ago
It's likely billionaire Dan Gilbert...
cpwright 12y ago
You also need to sink another ~$24 million into the property to demolish the houses, and if you don't make sufficient progress it will be repossessed. That's gonna be a bunch of jobs, so I'm not sure Detroit would care. I also would think that you would probably want to have more liquid property, or at least something that might possibly generate some marginal income.
- sp332 12y ago
  It can't be "repossessed" if you own it. (And it wouldn't be repossessed anyway since the bank probably doesn't want it back :p)
  - fiatmoney 12y ago
    It can be seized (or a lien placed) by the city or state for not paying property taxes, or fines from lack of upkeep.
  - michaelbuddy 12y ago
    If you don't pay property taxes on a house you own outright, the local govt can and does seize it. Repossessed isn't the right word but in the end, it would be resold and the gov't would make more money from it as well as new annual cycles of taxes. If you buy property and squander it or not keep it up to zoning regulations you can also lose property you own to the local govt. It's not repossessed by a bank, it would be more like a land seizure.
  - 12y ago

uptown 12y ago

The one thing they're not making any more of in this world is land. $3.2M isn't much money for a very large number of people in this world.

elmuchoprez 12y ago
The one thing they're not making any more of in this world is land. Huge portions of the US remain undeveloped or under-developed. Land isn't really in as short of supply as some would have you believe. $3.2M isn't much money for a very large number of people in this world. $3.2 is just the purchase price. The article says the buyer would be looking at another $25-million to demolish the structures that can't be salvaged. Then you have upkeep and taxes. I'm sure the actual total monetary commitment is still within reach for many, but it's not nearly as low as $3.2.
- uptown 12y ago
  Agreed. But really $25 million isn't that much for many people either. There's a handful of single-family houses in my town that sell for that much.
- talmand 12y ago
  Land can potentially be in short supply in areas people want to be located, especially land locked cities.
  - smeyer 12y ago
    Right, but once you start talking specific locations, you get back to the fact that land isn't really in short supply in Detroit these days.
pessimizer 12y ago
Yup. There are plenty of people who can sit on an illiquid 3.2M investment for an indefinite period of time. Barring a dirty bomb, nuclear war or government collapse, I can't see 6000 lots in Detroit for $3.2M not being worth 10x that in 30 years.

seanmccann 12y ago

The value of one single house is basically negative because of the bad neighborhood, bad surrounding homes, high crime, etc. By buying a larger number of contiguous homes, you can greatly reduce those problems. Sounds like a fantastic idea.

d4vlx 12y ago
There is some contiguousness but they are mostly spread all over the city. Take a look at the red properties on this map (zoomable): https://whydontweownthis.com/2014/mi/wayne/detroit#15/42.3472/-83.1043 https://whydontweownthis.com/2014/mi/wayne/detroit#15/42.347...
- larrys 12y ago
  "but they are mostly spread all over the city" 6000 homes spread out also means you can also create a mini company town by essentially luring people (for a new company) to the city and giving them a choice of different properties, renovated and ready to go with efficiencies gained by having so many to deal with. (Similar to when, say, Levittown was built (all in one area of course but same concept with construction).
  - at-fates-hands 12y ago
    This was my idea as well. I also wondered if the owner of the land would attempt to join adjacent lots to create larger plots of land - which could then be drawn together further. I'm not a city planner and am not very well versed in municipal zoning laws in Detroit so I wonder if its even a possibility.
  - ams6110 12y ago
    Many if not most of the houses are beyond renovtion. A fair amount probably have fire damage (arson in Detroit is legendary). Sitting for years with broken windows, holes in the roof, etc. leaves them rotted shells
    - 12y ago

Havoc 12y ago

Smells like an investment banking scheme to me. "Buy When There's Blood In The Streets"

e40 12y ago

I wonder what the property taxes, per year, will be on the 6000 parcels. And, since many cities allow you to challenge the stated value, it could be very expensive, in time, to challenge 6000 parcel values.

abbottry 12y ago
Property taxes in Detroit are surprisingly expensive.
- freehunter 12y ago
  When you look at it, they have a massive amount of infrastructure for a huge city that lost of a lot of taxable individuals in a relatively quick timeframe. Unless they can move everyone to a more densely populated area of the city and shut down the infrastructure, they have to bear the cost of being a huge city without the tax base of a huge city. That's why tax is so expensive. Well, that and massive corruption.
  - mynegation 12y ago
    I wonder if anyone in Detroit calculated pros and cons of "defragmentation": moving people to several designated areas and shutting down infrastructure in vacated blocks. I understand that US is not North Korea and it is easier said than done, but still would be an interesting calculation.
    - danielweber 12y ago
      The people that have stuck around thus far tend to be really attached to their current location. If you get them to up and move, they might as easily move to another city (maybe where their kids are) then to the new district.
      - tempestn 12y ago
        Which might still be worthwhile, or at least worth considering if things are truly as far gone as they appear from those blight maps. If the city is having to maintain water, power, sewer, etc. to an entire neighborhood for a couple of homes, having those people move to a different city and shutting the entire neighborhood down would probably save a bunch of money.

bussiere 12y ago

He may just want to play simcity IRL ...

eevilspock 12y ago

It seems obvious to me that too high taxes are the real problem here. If the tax rate makes owning a piece of property unsustainable, then no matter what your political-economic beliefs you have to agree, right? I say this as a supported of property taxes (as a stand-in for ground rent owed to the true owners of the land, the commons. Read up on Georgism or Geolibertarianism to understand what I'm talking about).

specialp 12y ago

I hope whomever bought it was not planning on reselling the properties piece by piece on ebay and other places. A lot of these types of homes are sold that way to someone that is like wow I can buy a house for $1500! Then they realize there is nothing they can do with it, and it actually costs them a lot of money in taxes and upkeep, and abandon it. Hey they could have had a sports stadium for just $500k more: http://www.nfl.com/news/story/0ap2000000360831/article/pontiac-silverdome-auction-nets-500000-in-sales http://www.nfl.com/news/story/0ap2000000360831/article/ponti...

erok 12y ago

Each home = $500. There is more than $500 of materials in each home. Aveerage home has 200-300lbs worth of copper. Each home gets destroyed. I am calling it right now.

abbottry 12y ago
This assumes that each home has not already been stripped of copper, which is not the case. Most of these homes are bricks and wood.
- erok 12y ago
  Which you can also resell. You could even scrap the ovens for money and water heaters. There is far more motivation to wreck it than upkeep it. All those houses are goin doooown.
  - abbottry 12y ago
    I don't think you understand. There is NOTHING in these houses. Its old, rotten wood, and crumbling brick. The purchase of homes in Detroit is NOT to sell or repurpose ANYTHING. I work downtown, and drive through these neighborhoods every single day to avoid traffic (thanks Google!).
    - erok 12y ago
      Brick can be recycled but I see what you are saying. And hearing that people are getting killed pulling live wires... That would definitely imply that copper is epic loot in Detroit right now.
- freehunter 12y ago
  I grew up in Michigan, and I can say with a good amount of certainty: any house in Detroit that is unoccupied does not have a single thing of value left in it, especially copper. Even some places that are occupied have had their copper stripped from them, sometimes live wires that results in the death of the thief. EDIT: Some links. Copper theft is a big deal in Detroit. City of Detroit borrowing a page from scrappers and thieves by selling old copper wire to boost Detroit's finances. http://www.detroitnews.com/story/news/local/wayne-county/2014/10/21/detroit-bankruptcy-trial/17650679/ http://www.detroitnews.com/story/news/local/wayne-county/201... Thieves stole copper from functioning pumping stations, leading to massive flooding in Detroit recently http://detroit.cbslocal.com/2014/08/13/copper-theft-a-possible-factor-in-metro-detroit-freeway-flooding/ http://detroit.cbslocal.com/2014/08/13/copper-theft-a-possib... Copper thieves caught in a sting on camera http://www.wxyz.com/news/local-news/investigations/copper-thieves-caught-on-camera http://www.wxyz.com/news/local-news/investigations/copper-th...

chovy 12y ago

Hacker houses! Turn Detroit into a tech meca

lovelearning 12y ago

I sure hope the buyer is doing so for altruistic reasons. [1] [1]: http://www.businessinsider.com/detroit-foreclosures-may-evict-150000-people-2014-10?IR=T http://www.businessinsider.com/detroit-foreclosures-may-evic...

tphummel 12y ago

OCP gathering property for "New Detroit"

teddyh 12y ago
You mean “Delta City”.

trhway 12y ago

>Everything is sold as is: The homes may lack furnaces or wiring and they may come with mold, tenants, or both. mold or tenants, they don't make distinction between them... Interesting that Detroit government still burdens these properties with extremely high taxes (thanks God and voters for prop 13 in CA :) even though the only service the Detroit government provides there is "foreclosure service". What are the chances that a buyer of huge amount of parcels can separate that area from the city?

maxerickson 12y ago
If I understand correctly, the voters of Detroit would get to decide about creating the separate area (I'm guessing it would require amending the city charter). I don't find it all that likely that such a thing would happen, but who knows.
jmspring 12y ago
Thank god for Prop 13? Oh jeez. You mean the fact that businesses can sit on commercial properties for more than either of our life times and not pay much more in taxes? Or the part where a family with a bunch of kids pays less in local property taxes, yet uses public resources more than a single individual who bought their house 5-10 years later? The idea of Prop 13 has merit, but the disparity it has raised and the hole this state has been dug into, not so much.
- trhway 12y ago
  >Oh jeez. You mean the fact that businesses can sit on commercial properties for more than either of our life times and not pay much more in taxes? one can see how a minor adjustment made be made here :) Though as things work as it is, why risk breaking a working machine... >Or the part where a family with a bunch of kids pays less in local property taxes, yet uses public resources more than a single individual who bought their house 5-10 years later? if they bought at the same time, the family would still be using more public resources, wouldn't it? there are some minor flaws, yet anytime i see property taxes in other states i always grateful for that relict of direct democracy, ie. Prop system of CA, which allows voters to control at least the most important things, like real estate taxes. >the hole this state has been dug into, not so much. what hole? We're booming. Again.

650REDHAIR 12y ago

Detroit gets a bad rap. I've traveled quite a bit from 18-24- going coast to coast by car at least a dozen times. I always avoided Detroit because of the bad press it gets. This year Apigee hosted #apicraft in Detroit and it was AWESOME. I fell in love with the city. The outskirts are still rough, but Midtown to downtown was really, really good. The "opportunity Detroit" slogan everywhere paired with the local's can-do attitude makes me want to invest more time and energy into the city. I can't wait to go back!

danielweber 12y ago
Different parts of it are in different shape. There's also the utter bankruptcy that means someone's gonna get squeezed really hard sometime soon.

deleted 12y ago

[deleted]

huherto 12y ago

If I am allowed to make a wild guess(wishfull). It is the mennonites. They have a farming culture. They are very good at building their own communities and Detroit is located next to some of the largest fresh water lakes in the world. In farming fresh water is everything.

tempestn 12y ago

Does anyone know why the properties being auctioned off appear to be so randomly situated around the blighted areas? As others have commented, it seems like a developer could do a lot more with a contiguous (as much as possible) group of properties than with the same number spread across the city.