Foreclosed Houses in Detroit- Aussie Vaccum Cleaner Maker sucks them up.
57Are Americans STUPID, BROKE, or SMART?
Our Aussie newspapers over the weekend featured a story about Theo Szinger, an Australian vacuum cleaner manufacturer who has cashed in his Superannuation, and purchased several properties in Detroit for a few thousand dollars each. (Plus there are often a few thousand dollars of taxes that have to be paid as well)
After minor tidying up, he's renting them out for a thousand dollars or more a month.
http://www.news.com.au/business/money/story/0,28323,25184134-5013951,00.html
There's lots of other Aussies doing this too, according to the story.
Apparently some properties in Detroit are available for as little as $1.50.
OK, this sort of defies logic for me.
I can understand it if the $1.50 house had a hundred grand worth of taxes owing.
But apparently houses in good order with tax bills of $10,000 or so are available for sale at around $10,000.
And can be rented out for over $1,000 per month.
What's the catch here.
If this is such a good deal, I would expect local Americans to be doing this. Because if this story is true, or doesn't have a significant downside risk, then you'd be stupid not to.
Or are times so tough for everyone that these are true bargains, and nobody can afford them, or get finance for them?
Is this guy a fool stepping where angels fear to tread? Because there's a LOT of difference in the rental market between the US and Australia. se http://www.rickotton.com/blog/?p=119
Apparently some of these houses were worth worth several hundred thousand dollars not very long ago.
And the banks have foreclosed, ended up with something that they cannot sell, and are getting rid of them at ANY price.
This is the most STUPID thing of all. To foreclose on these houses, instead of working out a manageable payment plan with the homeowners to enable them to stay in the houses. Surely this would be a much better result financially for the banks than selling the house at these stupid prices.
This is a double tragedy. Firstly for the homeowner. Then for the Taxpayers that are bailing out these banks to cover these types of losses.
Cases like this are very strong arguments for providing subsidies to the homeowners to pay their mortgages, rather than filling the bottomless holes in the financial system.
I read that there are currently 14 million empty homes in the U.S. What happened to the people who used to live in them? I can't help but wonder at the stories of tragedy, tears, and broken spirits that lie behind these sort of sales.
A Hub Pages Connection to Foreclosure
After I published the above content, I received an email from a very prominent contributor to HubPages and the forums. They wish to remain anonymous, but have kindly allowed me to share the following:
They had renegotiated their current mortgage with their bank, and all was in order. The family went on holiday, and came back to find themselves locked out of their home - which has been sold in their absence.
Their bank basically said, "Tough Luck".
Basically THEIR HOME HAD BEEN STOLEN. The family has had to obtain rental accommodation, and start legal proceedings against their bank.
The purchaser of their property has got it on the market, trying to make a quick $80,000 profit. Meanwhile the Hubber concerned has to cope with this massive disruption to their family life, and help children cope with the situation.
How can banks make "mistakes" like this - and then glibly fob them off.
And I suspect that many people would have unjustly been put out of their homes like this too.
So when you read about the "bargains" available in these sales - there's probably some personal tradgedy behind it.
To Hubber X - I hope that somehow this situation can be resolved, and that you can regain what has been taken away from you.
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Comments
Yes, getting a good tenant is ALWAYS the bottom line. But apparently he had loads of suitable people waiting for each property.
Yes, it may be a ghost town now. But in 10 years - who knows.
Many years ago, I had the chance to buy a cheap house in an inner city suburb of melbourne. NOBODY wanted to live in that area. Different story now that the demographics have totally changed, and the place is one of the most desirable (and expensive) places to live.
Seems like someone is pulling your leg, Eric. It has been a long time since I saw a house in Detroit That I would pay a grand a month for (not that I would live in Detroit. I'm 15 or 20 miles outside). And a lot of the houses that sell that cheaply, have been long abandonned, or were seized in connection to drug charges. These are not exactly in move-in condition. As far as being a ghost town, it may get better now the the scumbag mayor has done his jail time, and is leaving the state. I guess we'll see.
Mamma mia! The only way I can read this and not choke is thinking the houses are real dumps in neiborghoods no one would dare set foot in unarmed. Still. Towns change, hoods chancg, and one could make a ton out of that little investment. It's pretty incredible.
B.T. - Did you read the www.news.com.au link? It seems to be happening, even if these places may be a dumps now?
@BT - Yes, there's a lot that didn't add up in the newspaper article - therefore the reason for this hub.
I'm sure there's a LOT of reasons why local people are avoiding deals like this. Thanks for your local knowledge.
@Elena: That's what I'm thinking too.
Eric, are you thinking to venture in to this yourself?
About a year ago I would never have dreamt that the real estate trade would take such a big blow on the head, although many "econmists" kept saying "what goes up MUST come down!"
:)
@Leisa:Am I tinking of doing this myself?
Definitely Not.
@quicksand:Can I suggest a visit to http://www.dailyreckoning.com who were forecasting this whole financial cesspit over 18 months ago? Their free newsletter is compulsive, entertaining reading. And has taught me a lot more than formal economics classes EVER did.
cheers, Eric G.
>This is the most STUPID thing of all. To foreclose on these houses, >instead of working out a manageable payment plan with the >homeowners to enable them to stay in the houses. Surely this would >be a much better result financially for the banks than selling the house >at these stupid prices.
>Cases like this are very strong arguments for providing subsidies to >the homeowners to pay their mortgages, rather than filling the >bottomless holes in the financial system.
Eric,
I know your point is why lenders don't do more to avoid ending up with these foreclosures in the first place. However, I think that much of what we are seeing in the housing market today IS NOT the result of banks foreclosing on delinquent borrowers. What I see quite often, mortgagees are walking away from homes because there is no economic justification to continue making the payments.
For example, consider the buyer who acquired a home within the last 5 to 8 years with a US$750,000 mortgage at 7-1/2% interest rate, either as a residence or as an investment property, with the expectation that real estate values would continue to climb like they have for decades. Like those who have gone before him, this buyer is looking forward to appreciation and an ultimate sale that will return much more than what he has paid in interest. Because be is still at the front end of his mortgage, almost all for his monthly payments are going toward interest and very little toward the reduction of his principle.
Suddenly, within about a year, the market value of his property plummets to US$375,000 and mortgage interest rates are nearly halved as well. Now the buyer finds himself owing the bank nearly US$750,000 for a property only worth US$375,000 today, his monthly payments are doing very little to reduce this debt, and his property's value now has to tripple or quadruple before he hopes to see any black ink. What's more, for the same money he has been paying toward his mortgage he can buy or rent a home bigger and better then the one he now owns. His best option is to mail the keys to the bank and walk away.
@quilligrapher.
No, the comment re banks and foreclosures was not really the main point - but as you rightly point out, is the last step in a chain of events.
The family home has come to be regarded as an investment - which ALWAYS appreciates in value. So that equity can be used to fund lifestyle, new card, holidays, etc.
And the expectation when a married couple starting out is to have a big house with all the trimmings - the sort of thing that their parents achieved after 20 or 30 years of work. So the kids are loaded up with debt to the eyeballs before they even start. Is it any wonder they're buckling under the pressure.
The crazy practice of lending people a lot more than they can afford, because there'll be more profit if they fail to meet the repayments is another plan that didn't quite work out.
The cost of housing has spiralled to the extent that people are not able to afford to buy a home any more. Families have to have both parents working to service a mortgage - and then they have to incur childcare costs as well. Absolute lunacy.
Similar things are happening in Australia - but a few months later.
OK, I'm rambling now. That's enough :-)thanks for the comment.
@quilligrapher.
In the US you mail back the keys - and apparently that's the end of the story.
In Australia, if you owed $750K and the bank sold your foreclosed home for $375K. you would still owe the balance of $375K.
America has fallen apart, Detroit is the one of the hardest if not the hardest hit places in America. Its too bad other people have to make a dollar off other people's hard times.
What a wonderful article and I hope that the market will eventually change and accomodate those who are struggling or find themselves in tough spots.
Quilligrapher: I would not walk away from our home being upside down, that is what is causing the economy to worsen, just walk away and drop of the keys many were doing that a year and a half ago and we watched our home depreciate due to that. As for the person who has been caught up in our bank mess I wish them all of the best and in the end I hope that all comes through for them too.:)
Eric, I think you have hit the nail on the head here, and the comments here seem to be mostly from local knowlege. I feel that the US economy has been wounded and hiding in the closet, covered by the housing bubble. American manufacturing including auto makers have faced comparative rising cost of manufacture. Imports from Asia has fueled those economies and now leaves them invested in the American economy along with much debt and few solutions for other sectors of the economy either Oh well! Sell missiles I guess.
@Earnethub - yes- they could use the missiles to blow up the empty houses I guess.
Anyway, the vacuum cleaner bloke got national TV coverage tonight re his purchase of all these properties in Detroit.
Eric, I live about four hours west of Detroit and have spent of most of my life in this part of the U.S.--I grew up just east of Gary. Lissie has it right--you can buy a cheap house in Detroit alright, but you'd better be prepared to live in it yourself and you'd better have a gun and know how to use it.
I moved from the city I was born in to West Michigan in 2007, just before the real estate market tanked, to take a job...at a bank. (Ouch.) The house I lived in back there had been on the market a year and a half when I moved (in 2007) with not a single person looking at it. About half of the houses on the block were foreclosed and vacant. It took me another year to give up and find a renter--no one would even rent it, not at any price--there's a real glut of rentals as you can imagine. The house is now worth a quarter of what I paid for it and won't sell at any price. My renter is struggling to make rent. I'm going to have to give the house back to the bank. Listen, it's so bad here that BANKS are walking away if the houses don't sell at the first sheriff's auction after foreclosure. People are finding out three years after foreclosure that they are still the legal owners and the house is now stripped of metal and the city wants money.
So, there are two sides to every story. Maybe this guy is making money, maybe he's just trying to sell houses. I only know what I see with my own two eyes, and that ain't it.
Hi Eric,
maybe this guy has heard the old Mark Twain maxim about buying land, cos they're not making it any more! The whole housing market fiasco is busily happening here in the UK too. House prices in my area have already fallen around 20% since the peak in Oct '07. I'm in the South-East where prices are generally high because of the history of low-unemployment and proximity to London, so we may well be harder hit than elsewhere.
I know that our lenders always try to re-negotiate loans or change them to interest only, before proceeding to re-possession. To snatch them back in the way that you describe can scarcely be legal, or do they have different laws in the States? Reading HubPages is a real eye-opener these days!
Amanda, here they start to talk about foreclosue if you miss three payments. One problem is that many of the mortgages made during the boom were immediately sold to someone else and sold again, and whoever does finally own them in the end doesn't service them. It is not to the advantage of the servicing entity to do a work around, their bottom line improves if they take back the property, even when they can't sell or maintain it. Obama's refi plan to help stem foreclosure addresses none of this. No lender and certainly no servicing entity can be made to work with mortgage holders in default. It's all voluntary. Now we have tent cities forming. All of this is too little too late. It's just a mess.
I would add that Detroit has been in decline, rapid decline, since the riots in the late 60s. It has shown NO sign of coming back for almost 50 years. What makes this vacuum cleaner guy think that now, in the midst of the biggest economic disaster ever, he's going to make money on property in DETROIT? He's LYING. My bet is that he's not buying houses in Detroit, he's trying to sell houses in Detroit. Only someone on the other side of the planet would take THAT bait!
The thing that most Aussies miss too - that most of those houses - at full value were only worth $200k - which is a shack in any decent sized town in Australia - the housing market is very,very different in the US.
Thanks Amanda and Pam.
No, the whole thing doesn't make sense.
But I don't think that the guy is lying - He just hasn't done his homework - or read the Rick Otton link in the body of my hub.
The "Grass Is Greener on the other side of the fence " myth is still alive and well
I believe that more of us should do our homework, as there are many shady things happening here in the U.S. and we are only seeing half of it and listening to the news. I bet digging further would uncover some horrific happenings amongst the millions who have lost their homes. So saying that a person has to be 90 days behind is not necessarily true, as our bank if you were to do a Loan Mod, you had to be current on your payments, if you were behind they were less likely to assist so I believe that different banks make up different rules and personally they are all corrupt and ruthless. :)
If the bank can't sell the properties, why not just turn them into homeless shelters rather than leaving them empty to be vandalised. Can't they put people in the houses and try and start up some cottage industries? I guess, that would be in a perfect world.
I live South of Detroit in Monroe County. Detroit is in shambles and people are loosing their jobs left and right and loosing their homes, but most homes in the Detroit Area are not worth anything. That's why they are selling for so cheap, because there's nothing there to gain. It's true that these houses are Big houses and use to be beautiful, a long time ago, but now you just see these abandoned, dilapidated houses that just need to be torn down. Also in Detroit, ALOT of the houses were being stripped of everything copper, including plumbing and wiring. Like previous comments, if you live there you need a gun or guns and be prepared to use them, murders may not get the news every night, but that's because it's the same shit every night. And if the Auto industry goes or more of their suppliers, Detroit is going to be a ghost town, not that it already isn't becoming that.
I agree with you cindyvine. I have wondered that myself. I wonder why people just don't go into the empty houses and start living in them. I mean if the houses are not selling and the yards are not kept up, who is going to care if someone moves in and starts keeping things up (as much as possible anyway). If you are homeless, living without electricity is a minor problem until it gets really cold. I guess you would have to have a fire place. I wonder why some investor hasn't snatched up a bunch of cheap houses on one street, fenced them all in and started a cottage industry neighborhood. Maybe it's because everyone has cut back on shopping.
With real estate there is always so much more than just the raw numbers on the table. If these homes are such deals there has to be a catch.
Personally I do wish the banks would just work with the original owner to keep them in the home. But then I think they are trying to do this now more than they were just a few months ago. Of course each mortgage is different though and for those who tried to purchase more home than they could truly afford in the first place I can see not wanting to give them the property. It is hard to judge each case though.
Ok, here's what one small time American has been doing in Detroit. He borrowed enough money to buy six houses (over a three to four month period) from Countrywide a year + ago. You see Countrywide had a spot on the internet where you could see the addresses of all the distressed properties. Detroit had hundreds and Countrywide was dumping them. These properties are now HUD subsidised (sp). For the Aussie that means part or most of the rent is PAID BY THE US GOVERNMENT. Later, Countrywide was absorbed by Bank of America.
Great more money paid out by the U.S. government and more people without homes due to corruption. I am certain all have heard about the people in Sacramento California, who are living in tents after losing their homes,jobs etc. Now that is not acceptable!!!
"there's probably some personal tradgedy behind it."
Usually when something dies in the woods you can't see exactly what it is; but you can always see which scavengers are flying high above waiting to swoop in.
Yes, you mean like REO agents?
Eric - if you've ever BEEN to Detroit - you'd know that $1.50 is still too much to pay for a home there. It's AWFUL!
As for the mortgage mess - well, as a resident of South Florida - maybe I'll create a hub to fill you in because one of our local papers recently turned up evidence that there's a LOT more than anyone knew was going on which contributed to this whole mortgage mess.
Lissie says:
9 months ago
I think the trick is to get a paying tenant! Detroit doesn't have any work and is losing population - there are entire areas which are like ghost towns - except the ghosts are armed - good luck to him I say but it reminds me a bit of the NZers being fleeced by the Gold Coast property developers a few years ago!