The Truth About Those $500 Detroit Houses

hantz-st.-clair-goethe
I saw a piece in Yahoo News about this and I wanted to pass it along. I get at least a couple of calls every month from out of state folks asking about these.

The article does a good job in explaining just why a $500 house isn’t the bargain that people think it is. Here it is…

Tempted by Detroit’s $500 Properties? 5 Things to Know

By Beth j. Harpaz, Associated Press – March 11, 2015 4:45 PM

DETROIT (AP) — Sixty-two thousand properties have faced foreclosure in Detroit this year over unpaid taxes. About half will likely be auctioned for $500 apiece this fall.

Buying homes or vacant lots for $500 might sound inviting, even in a city as troubled as Detroit. After all, look at New York: Decades of crime and decay gave way to a real estate boom that has gentrified even outlying working-class neighborhoods. Properties that sold for thousands in the bad old days are now worth millions.

But there are no guarantees. “The opportunities are there but there are huge challenges,” said Dang Duong, a law and business student at the University of Michigan who has bought and renovated several dilapidated homes in Detroit. “If you’re under the impression you can buy a property for $500 and wait a few years until Detroit has recovered, that’s going to be difficult.”

Here are five things to consider before buying property in Detroit.

1. THE HOUSE MAY BE OCCUPIED

Are you prepared to evict former owners, longtime tenants or even squatters? Loveland Technologies, a mapping company that has surveyed every property in Detroit, estimates that half the properties facing foreclosure are occupied, housing about 100,000 Detroiters.

Critics question the morality of buying occupied homes and fear the program may increase Detroit’s homeless population. They say many owners stopped paying taxes because they weren’t getting city services in return. Others say those who failed to pay taxes contributed to Detroit’s troubles.

Incredible Productivity System: Bullet Journal

Starting with my first Franklin Planner in 1995, I have been engaged in a seemingly endless quest to develop the perfect productivity and organizational system.

The Franklin system was truly spectacular. I was working in Silicon Valley at the time, and taking the introductory class from a real FP trainer was required after you got hired. It didn’t take long to see why. The class was two full days long, and it laid out a simple and elegant paper-based methodology for organizing and tracking everything in your life – from appointments to tasks to random thoughts and ideas.

I used it religiously. Right up to the point when I bought my first Palm device in 1999. With it I was able to sync my calendar with the device, and that made the entire calendar function in the FP redundant and ultimately unnecessary.

Then I found GTD – David Allen’s methodology, which had a huge impact on my productivity, and I started using various paper-based and electronic methods of tracking notes, tasks, and projects.

None of which worked particularly well. I even used the GTD add-in for Outlook. It was good but not great.

Smart Investment Money Goes for Real Estate

dennisfassett.comI found a great article by Denis Kleinfeld on the Moneynews.com website that talked about real estate as an investment vehicle and I wanted to pass it along.

Here’s the piece:

I know that many people are unhappy with the way their money managers have been handling their investment portfolio. This becomes readily apparent to me every time I sit in one of those meetings between the client and their investment advisers.

The meeting pattern is so predictable. First, the review of the current portfolio holdings explaining that while they didn’t meet the benchmarks, the portfolio did better than others did. The implication being that it was a good thing that they were handling the investments otherwise the client would have lost more money with the other guys.

Second, the presentation of the predicted investment climate for the next month or quarter is made. All sorts of glossily printed charts and graphs based on something called data tell the future in mathematical terms. The chief economist of the firm has pronounced what will happen and the client is expected to dutifully be in awe of his brilliance.

You would think that listening to these guys that the world of investment consists of primarily stock and bonds and something called alternative investments.

I have the impression that they lump everything they actually know little about into the alternative investment category.

The Landlord Suicide Squeeze

dennisfassett.comThe suicide squeeze is one of the most exciting plays in baseball.

It happens when there’s a runner on third who takes off toward home when the pitcher starts his motion, expecting the batter to make some sort of contact with the ball and put it in play, thus scoring a run.

Except for trying to steal home outright it’s also the riskiest play in baseball.

I was with a couple of buddies this afternoon smoking cigars and talking shop. We got on the subject of rental houses, and since one of them is a lawyer, we talked at length about how many LLCs I use with my rentals and how I learned to use them properly.

He then told me about a couple of his colleagues that have free-and-clear rental houses. They’re building up portfolios, and his understanding is that neither of them use LLCs at all, as they were simply holding the properties in their own names.

That’s just about the riskiest play in landlording.

Which is why I call doing that it the Landlord Suicide Squeeze.

Why? Because when you do that you’re betting your entire personal balance sheet on black.

Every single day.

All it takes is one slip and fall or one “accident” at one of your properties and you could be committing personal financial Hara-Kiri.

Now I know the folks he was referring to, and they’re both really smart people. Which reinforces to me the fact that proper use of entities isn’t common knowledge.

So I want to use this space to review the reasons why using entities is important when you have rentals.

One caveat – my friend is a lawyer, I’m not. So I’m not giving you legal advice. If you have questions, talk to a local attorney with real estate entity experience.

Here are three items to keep in mind:

Stock Market is Now DOWN for the Year. What’s in YOUR Wallet?

dennisfassett.comIt has been a pretty good ride, hasn’t it?

I mean, since the dark days of the “great recession” when the DOW bottomed out at 6443.27 on March 6, 2009, the market has gone pretty much straight up.

Remember those guys in the office that spent all day with a browser window open to their E-Trade accounts so they could “trade” their mutual funds?

They were all over the place before the DOW tanked. They got killed during the crash. And now that they’ve built their 401ks back up a little, they’re back with a vengeance and they’ve all been partying.

Which is all cool. I don’t ever begrudge anyone their success.

But the funny thing I’m noticing is that people have really short memories. One of those trader-guys even told me that the same thing can’t happen again “because the government won’t let it”.

Wow.

The other thing I’ve noticed recently is that those guys are a bit less euphoric. The reason is pretty easy to determine.

The DOW closed at 16,576 on December 31, 2013. Last Friday it closed at 16,544.

So those clowns day trading their index funds are now negative for the year.

Beware of Professional Tenants!

DennisFassett.comI have to say that one of my biggest fears about being a rental property owner is running into a “Professional Tenant”.

A “Professional Tenant” is a someone who knows the rental laws cold, knows the system, and therefore knows how to work the system” by taking advantage of pieces of the law to live rent free. Sometimes indefinitely.

They can cost you several months of rent and thousands of dollars in legal fees before you win. And they’re generally not collectable so while you’ll eventually get your house back the judgment will be worthless.

I’ve mitigated that risk somewhat by buying and owning properties in the best school districts, so I generally have no less than ten good quality applicants to choose from when I have a vacancy. So I can reject an applicant that doesn’t look right on paper.

And to date I haven’t ever rented to one. But my fear is still there.

I bring this up because I just read a great piece on the topic and I wanted to share it with you.

It’s called ‘Professional Tenants’ and How Not to Fall Victim to Them, and it was written by Richard D. Vetstein, Esq.. A link to the article is below.