Image: Detroit Press
It’s no secret the city of Detroit has a glut of foreclosed homesrotting away with no idea what to do with them.
In a new twist, The Detroit Press reports on a scheme that’s putting new owners into 460 auctioned homes and made the sellers millions of dollars.
Using a business model successful in inner-city car lots, handy-man Keith Hudson suggested to his boss, renowned slum-lord Ernest Karr, they go into business buying stripped, tax-burdened properties and flipping them to desperate buyers.
The pair find buyers to cover their purchase price up front, and get them into a land contract that leaves the new owner responsible for tax obligations as well as putting in plumbing, wiring, paint, and often even walls.
Most sales require buyers to put down $1,500 and pay the remaining balance with payments of $500 over 18 months. On a house that costs no more than $1,500 each payment is pure profit and on average each sale could earn them $9,000. The new buyer then needs to spend several thousand dollars on back taxes and up to $30,000 to bring the structure up to code.
They have sold about 300 homes in the last eight months — almost $3 million in profit in less than a year.
University of Michigan planning professor Margaret Dewar told the Detroit Press, the stakes are high for Detroit’s struggling families.
If these new homeowners fail, overwhelmed by maintenance costs and taxes, the results could be disastrous, she says.
“That’s worse than renting,” for the new owners, Dewar said. “They would have no equity, no house and would be starting over again.”