Michigan’s unprecedented drop in real estate values, especially in southeastern Michigan, has been a blow to many but has created opportunities for others. Southeastern Michigan is now perceived by the rest of the world as offering exceptional real estate values. Berry Moorman represents a number of clients who have made an investment by purchasing Michigan real estate, haling from such diverse locations as New York, the United Kingdom, Canada, and Turkey. While the investment strategies and philosophies of these clients differ, the common denominator is that they all believe Michigan real estate, especially Detroit real estate, is currently a bargain.
Typically, the best deals are found under circumstances in which the U.S. Department of Housing and Urban Development or a bank is in the position of seller, either directly as the owner of a property through foreclosure or as a mortgage holder approving a short sale. Here’s an example. One of our clients recently purchased a foreclosed residential property for $25,000 that five years ago sold for $120,000. Although that home needed a modest amount of repair before it was rentable, after an expenditure of about $15,000 the property was quickly rented for $800 per month.
When purchasing any foreclosed property, particularly a foreclosed residential property, it is extremely important for the purchaser to engage in thorough due diligence. The title insurance is typically provided through an agency which is under contract with the selling entity and, in reality, somewhat under the sellers control. In addition, selling banks and governmental agencies insist on the buyer signing purchase agreements and closing documents which allow virtually no post-closing relief to the buyer, provide very little seller representations as to title, condition or liens, and are contingent on nothing but a bare-bones title. As to the property itself, defaulting owners tend to ignore and neglect proper maintenance of their old property.
Nonetheless, with careful planning the wise investor can purchase and rehabilitate foreclosed properties, and expect annual returns on the investment ranging from 10% to 18% (after real estate taxes and insurance). In addition, if the real estate market rebounds, the value of the investment could potentially double.
Purchasing and renting residential real estate is not a completely passive venture, and for those investors who have no time or no desire to deal with collecting rents and listening to tenant complaints there are a number of companies providing property management services. These companies generally charge a monthly fee and will manage everything with respect to the rental properties, including contracting for repairs if necessary. Property management services fees range from $80 to $100 per month.
Purchasing foreclosed Michigan residential real estate is a safe and profitable investment if attentiveness is paid to the details and intricacies of the sales process, and if legal expertise is obtained to attend to the tricky issues surrounding the purchase of these properties. If you are contemplating purchasing real estate in Michigan as an investment or have other real estate issues and questions, please contact Mark Straetmans at (313) 496-1200.