Are $1 homes worth buying?

by Xin Lu on 14 August 2008 10 comments

This week a story from The Detroit News reported that homes are being listed in Detroit for $1. One particular $1 home sold for cash after being on the market for 19 days. The buyer seems to have gotten the deal of a lifetime, but did she?

As detailed in the article , the buyer will need to sink in a considerable amount of money to rehab the home to a livable state because everything of value including the kitchen sink have been stripped and stolen from the house. Even if she rehabs the home, as long as it stays vacant looters will steal whatever she puts in. Additionally, she will owe $3900 on the property taxes unless she challenges the assessment. Basically, that $1 purchase could very well turn into a very large money pit.

One dollar homes are not exactly unique to Detroit. The Department of Housing and Urban Development or HUD for short regularly sells homes for $1 each to local governments through their Dollar Homes program . The local government is responsible for rehabbing the homes and reselling them to moderate and low income families. So once again, a $1 home costs much more than $1 for the buyer.

Another interesting place to buy $1 homes is Norfolk, MA. The town regularly sells historic homes slated for demolition for $1. The catch is that if you buy the home you do not buy the land underneath it and you are required to move the home. It generally costs $10000 or more to move an entire home, but if you already have a plot of land it might not be such a bad deal. For those who do not have land, some homes might have antique finishings and raw materials that can be salvaged.

Looking at all the options, it seems that even though these homes are 99.99% discounted they may not be such a good deal for most people. However, they might be a steal for those who have the time and resources to either salvage the raw materials or rehab them for future profit. One thing is clear, $1 homes never really cost just $1 and buyers should always be wary of anything that is extraordinarily cheap.

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Guest's picture
marisa

I'm not sure I agree with you about the value of the home not being worth $1. Just because a home costs more than the nominal charge of $1 doesn't mean it isn't a good deal. ANY home costs more than the purchase price, and continues to cost money in upkeep, etc.

A better measure of value might be to take the value of the lot, subtract demolition costs and closing costs (and the $1), and if the result is a non-zero number, then it's a good deal... provided you have something you want to do with a lot in that particular location.

Guest's picture

Such offerings are kind of economic imbalance signs. Anyway, buying house at one dollar price means that actual costs will be much higher.
Just remember: nothing is free.
Thus in general I agree with the article and marisa: buyer should be very careful while accepting such offerings.

Guest's picture
Meoip

She bought the home for $1 the city has placed an assessed value on the house someplace around $65,000 (the sale price in 2006). Couldn't she donate this to the church or some other non-profit and write it off as a tax deductible donation on her taxes in which case it she would come out ahead.

Guest's picture

It all depends on the property. However, any home that costs less than a double cheeseurger at McDonalds is definitely suspect. My question is, if the homes are able to be rehabbed and profited on, why are the sellers asking for a dollar? Basically, they are trying to rid themselves of debt.

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Guest's picture
Miranda

This is a great reminder that with nearly everything, there are hidden costs, or expenses not thought of. From buying a car (but not thinking of maintenance and insurance) to getting a bargain on really cheap products (that may break and need repairs fairly soon), it is important to think about costs that may not initially present themselves.

Guest's picture
asithi

That would be my first thought. There are often too much associated cost to such "a good deal." To me, it is too good to be true.

Guest's picture
Guest

I think anyone buying one of these properties would have to be doing so as a long term investment, and is probably well aware of the hidden cost. The neighborhoods these homes are in are so despairing, they make me tear up when I see them. Detroit has many potentially beautiful neighborhoods, and used to be a magnificent city with beautiful architecture, gardens etc. If I thought that Detroit was going to make a comeback in the next 25 years i'd seriously consider investing in property as well. Unfortunately i have difficulty seeing it... maybe I'm just lacking in faith....

Guest's picture

The neighborhood is probably more of the problem than the house itself. If it is surrounded by other abandoned houses in an area full of gangs, they aren't going to be able to sell/rent it even if it is fixed up nice.

The best thing people could do in this situation is buy up an entire neighborhood and refurbish all of the houses--just doing one isn't worth much. Of course that would require a lot of money to invest in an area where home prices are very low already.

The other option would be to tear the house down and just sit on the land for several (or many) years until Detroit starts turning around.

Guest's picture
Suz

According to the numbers you quoted, a $1 house could still end up being a good bargain at right around $25,000 including fixing up and the back taxes, especially if you plan on living in it and doing some of the repairs yourself until you sell. THen if you sell, even at below market price, you've still made a bundle.
-Suz

Guest's picture
Kenneth

To the above poster, I don't believe it's a good investment either way you look at it. Just look at the home now compared to what it looked before. It's going to take more than $25k to fix this house up. I can guarantee you that! I've been doing contracting work, and even if the homeowner did it herself, the materials alone would cost her at least $20k minimum. Let's not even talk about putting in a new roof, HVAC system or any of those goodies. With barebones items, this would easily cost her that much. The home needs a total 100% repair. The vultures tore off 99% of the siding and even managed to cut some studs off the home. Honestly, the only thing I see salvageable may be the foundation. Otherwise, this house is a TOTAL LOSS.

Also, who in their right minds would even consider living in this home, after it being plastered all over the internet of the way it looks now. Even if this owner fixed it up nicely, anyone who has access to the internet will find out the neighborhood is trash and extremely unsafe. You wouldn't be able to sleep for even a minute without thinking there are vultures getting ready to attack the home and the owner.

Sorry, but even at $1, the lady paid too much for this house. It's not liveable, will cost a fortune to repair, and she'd have to wait forever to even think about renovating this home as the moment she has her eyes off the house, anything of value left in or near it will be ripped off. Besides, she better be getting insurance for the home. Oh wait, she can't...no one is going to insure that home. She better watch out for those liability lawsuits these vultures will get her for because she's stupid enough to buy this.

Remember, the lenders know everything. Even though this home looks like a great deal, lenders know it's a poison pill waiting to happen.