investing in cheap houses

But what are the chances of ever selling a home in Flint? These houses are priced at under $3000 because that is what the seller thinks that they are worth. A home is not a bargain no matter how cheap it is if there isn't any buyers. All you have to do is watch the movie (Roger and Me) to find out the story of Flint.

-john-

Check out some real estate investment trusts. You'll have to do research to find which ones have lots of cash right now to buy into distress markets.

If that was happening in my area, I would probably buy a dozen of such $1,000 houses, assuming that my real estate taxes will reflect the price I paid.

Outside the area, I am afraid that overhead and agency costs would make such an adventure not worthwhile.

Fortunately, we live in an area that did not experience either a big boom, or a big collapse. This is not a random occurrence, as I did not want to buy a house in the other area (north of Chicago) that was undergoing a boom. So such housing adventures would remain only a thought.

I think residential REITs typically own large apartment complexes, not single-family homes or duplexes.

"PeterL" wrote

A good place to start:

I would have strong concerns that renters who can reliably pay in the Detroit area, for one, will be so easy to find, given the trouble the Big 3 automakers are having. With the economy foundering in general, I expect there may very well be a nationwide, Depression-era-like loss of jobs in the rest of the country. Bad gamble. Let the banks eat it. Banks have a better shot of being bailed out than Joe Yupper Middle Class.

I think people need to get away from thinking the only way to make money is through gambling that this-or-that will rise in price in the next five years. Being involved in making a useful product (not one that skims off money by preying on people's frailties) is better for the psyche and the economy as a whole.

Along these lines, I think the best thing we can do these days for our financial security is to focus on making ourselves invaluable to our respective employers (and clients). For example, taking extra job-related education courses, volunteering for extra assignments, exhibiting a cheerful demeanor at work, avoiding gossip, being pro-employer and loyal to firm and supervisor, etc.

Beyond that, make choices and decisions that allow us to avoid debt and save regularly.

Here's a saying that I saw recently that gets to the point:

"Life is not about waiting for the storm to pass... it's about learning to dance in the rain." - unknown

-HW "Skip" Weldon Columbia, SC

You need to get away from the idea that every investment approach other than your own constitutes "gambling" and that every application of mathematics to investments other than your own consitutes "numerology". Any investment involves risk. Where is the bright red line that separates investment and gambling? I think of sound investment as being "gambling" with positive expectancy.

If cheap houses can generate rental income after property taxes and upkeep that is high relative to the original investment, they can be regarded as "value" investments. I'm not a real estate investor, so I don't know if they can. That's why I started the thread.

How is buying property and renting it out "preying on people's frailties"?. A landlord who provides a place for people to live and who maintains his property is performing a valuable service.

At $1,000 per house, the risk is very minimal as long as you maintain proper insurance.

Gambling is taking risk where you know the other guy has an advantage. It is a folly.

Buying a distressed $1,000 house from a seller who does not want to get top dollar for their stuff, does not involve such a "guy".

Igor Chudov

I don't know. Like John suggested, there is a reason these houses are going for so little. So I am not prepared to make a blanket judgment like yours, other than, sure, if one can bear a loss of $1000 and all the other work implied in getting such a house up to snuff, go for it.

More houses than buyers? Real estate markets are very inefficient. In a downturn, much money can be made by people with deep pockets and patience.

That said, I grew up in Detroit and visited over Christmas. The city of Detroit is dying and has been since the 60's. Some of those $1,000 houses will be in neighborhoods you wouldn't want to enter without a company of Marines.

-- Doug

During the property boom I have heard many people say things like "property always goes up" and "property doubles every 7 years."

Investing in property is almost the same as investing in shares. If you have a property that you rent, you own a business. Your business is simply to rent that property out to others.

The general share market is often exposed to high technology that can produce greater profits from lower inputs. That is, due to continuing innovation from companies like e.g. Google, profits rise. This is why expected returns from shares, as measured by economic indices like the S&P500, is higher than the expected return from property. With property, at the end of the day you are only selling land. There is little innovation or technological improvement in that.

However, this is not a downside as it provides stability and steady growth.

My first thought about a $1,000 house is that, it may be "distressed" physically.

Is it one of those places where the previous buyer (on a subprime ARM time-bomb) expressed their anger on the way out? By trashing it?

If a $1,000 house needs $30,000 worth of work before it is legal to rent out, then isn't such a great deal. Especially in a "distressed" geographic area like Detroit, with low rents and a high risk of bad (or just laid-off) tenants.