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Who would buy a house in Detroit, sight unseen?

By
Mortgage and Lending with Home State Bank NMLS# 166179

The caller says, "Hi, I just bought a property in Detroit for $1,600 cash (yes, sixteen hundred dollars) and need a local hard money lender to lend me money to rehab it, what are your qualifications?"  Sounds like a reasonable requests, right?  So I ask, "Well, let me ask you a couple of questions about the house."  Ready... here comes their response... "I haven't actually seen it, other than the picture in the listing, I live in California but it was too good to pass up!" 

If I hadn't been side tracked with our conversation about California, (after college I moved to San Diego for 23 years and have since moved back to my hometown in Michigan) I might have said what I was thinking, "Are you out of your mind?  Who buys a house without looking at it, walking through it and driving around the neighborhood?"  I wish that was the only call I've had like that one but it's not.  A picture is not always worth a thousand words, not in this business anyway.  

As a Hard Money lender, typically I would get in my car and drive by the house myself but this time I didn't bother, the caller told me enough about the house that I could determine it wouldn't qualify.  In Detroit, or any city for that matter, you can't just buy a property because it's unbelievably cheap.  Without seeing it with your own eyes or having someone you trust to personally walk through it, you'll have no idea what you are getting into.  You know the saying, "If it's too good to be true, it probably is", many real estate investors are just now learning what that means.  I recently drove by the callers house, 2 months later it's still an untouched eyesore.

Here's another repeated investor problem, buying a group of properties, bulk purchases where you pick up 20, 25 or 50 houses at one time.  These are a grab bag of unsellable properties the bank couldn't unload any other way.  The last group I looked through had only one house I would consider out of 30, and I say consider because it was the best of the bunch in a marginal area, not good.  I doubt many investors who buy in bulk have walked through all of their properties let alone driven through the neighborhoods or they wouldn't have bought them.  On the other hand, if you need to show a loss on your business ventures this could be the answer.

My suggestion is to search the internet for a local rehab or hard money lender before you buy; they'll tell you what they lend on and why.  If you need unconventional financing don't you think it's a good idea to find out what they'll expect and what to avoid?  Most Hard Money lenders, especially rehab lenders are usually local to their real estate market.  They're on the ground watching everything that may cause risk to their investment dollars.  If you're buying out-of-state do yourself a favor and take a trip to the area you're investing in.  By the way, Michigan is beautiful this time of year.

Comments (6)

Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Trent,

Great post. I am a rehabber and love hearing your perspective. Your comments are simply common sense.

Cal

Mar 20, 2010 09:50 AM
Trent Dalrymple (248) 854-0625
Home State Bank - Bloomfield Hills, MI
Allowing Mortgage Professionals to Lend Nationwide

Cal,

Thanks for the comment, always nice to hear from rehabbers.  I joke about it but some people have more money than brains, that's been my experience, even outside of the business...

Mar 20, 2010 09:56 AM
Joshua Zargari
MJ Decorators Workshop LI staging and home decorating - Lynbrook, NY
MJ Decorators Workshop

Great post

Mar 20, 2010 09:56 AM
Trent Dalrymple (248) 854-0625
Home State Bank - Bloomfield Hills, MI
Allowing Mortgage Professionals to Lend Nationwide

Thanks Joshua, it's important that buyers are getting some insight into these crazy times in real estate.  In my 24 years in the business I've never seen buyers continue to make so many expensive mistakes.  This is a great time to invest but a little thought goes a long way.

Mar 20, 2010 11:05 AM
Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

I have a few investors who buy sight unseen. It is always numbers thing to them and if the numbers don't work, then they don't buy. They are never buying to flip, they are always buying as rental properties and don't seem to care what the property looks like. But, me personally, I could never do it!

May 28, 2010 08:17 PM
Trent Dalrymple (248) 854-0625
Home State Bank - Bloomfield Hills, MI
Allowing Mortgage Professionals to Lend Nationwide

Todd, As I mentioned I continually run into investors who buy without looking, I know it's all about the numbers but my frustration is I end up spending more time explaining why I can't lend on these houses than they took looking at them.  You're like me, I could never buy anything sight-unseen, especially something like a house that can have so many unknown issues until you own it.

May 29, 2010 01:23 PM