Grosso is part of a Detroit land rush that’s drawn investors from around the U.S. and as far away as England, Cambodia, China and Australia seeking distressed homes for as little as $500. Local buyers—and even a Dutch mink farmer—scooped up hundreds of houses at Wayne County’s tax auctions, which last year put a record 21,350 tax-delinquent properties up for sale, 89% of them in Detroit, and sold 12,333.
“There’s going to be a big turnaround for Detroit and I want to be part of it,” said Grosso, 32, who left a job at Citi Field stadium after he was injured in a fall while erecting a rooftop sun screen. He said he paid as little as $600 for his Detroit homes and has driven from Long Island several times to check on them.
While private-equity firms such as Blackstone Group LP snap up foreclosed homes in California, Arizona and Florida, smaller investors have found bargain-basement bonanzas in Detroit. In a city bedeviled by crime, population loss and fiscal distress, buyers are betting on an urban renaissance like those in Washington, D.C., Brooklyn, N.Y., and Pittsburgh, and property values are rising.
“A lot of people think of Detroit as the armpit of America, but there are lot of nice areas in Detroit where there’s money to be made,” said Nate Heaps, 32, of American Fork, Utah. He bought 290 Detroit properties for $189,600 at the October tax auction, according to Wayne County records.
Private-equity firms and smaller investors are buying properties in some of the areas hardest-hit by the U.S. housing crash, wagering demand for rentals will rise as banks restrict mortgage availability, putting home buying out of reach for many. No cities in the U.S. match the Motor City’s tax auctions for low prices, said Heaps.
And none come close to the number of tax-foreclosed homes sold, said Alan Mallach, senior fellow at the Center for Community Progress, a Washington-based advocate for land reuse and neighborhood revitalization.
Cities sell tax-delinquent properties to recoup money owed to them for the maintenance of public buildings, salaries of police officers and fire fighters, and support of schools. Tax sales are often sparked when banks seize properties in a foreclosure and neglect to pay city levies. There were 945 bank repossessions in Detroit during November, according to RealtyTrac in Irvine, Calif., down from 1,060 a year earlier.
Detroit led the nation into the foreclosure crisis as the automobile industry declined, and people left the city. In April, it narrowly averted state takeover because of its budget deficit and $12 billion in long-term debt and the city is now under watch of an advisory board as part of an agreement with the state to prevent it from seeking bankruptcy.
It’s a bad sign that so many homeowners don’t pay taxes and walk away from properties that are then sold at rock-bottom prices, Mallach said.
“It is a fundamental statement about a lack of confidence in the future of your city and neighborhood,” he said.
Mass sales attract “milkers,” landlords who buy and rent without maintaining homes or paying property taxes and destabilize neighborhoods, Mallach said.
More than 6,500 Wayne County parcels were auctioned in 2011 and another 20,000 are expected for sale this year, said David Szymanski, the county's chief deputy treasurer.
Roughly one-quarter of Detroit’s housing units are vacant, according to Detroit Future City, a 50-year blueprint for the city’s recovery. Mallach worked on the plan initiated by Mayor Dave Bing to redesign Detroit’s 139 square miles, larger than San Francisco, Boston and Manhattan combined for a shrinking population. It envisions such strategies as turning sparsely populated swaths into green space and farms.
About 150,000 of Detroit’s 385,390 lots are vacant or have unused buildings, Mallach said. About 66,000 parcels are publicly owned, and that number grows as unsold homes from tax auctions revert to the city or state.
Detroit Future City assumes the population will bottom out at about 615,000. It fell by 25% since 2000 to 713,000 in the 2010 U.S. Census.
In November, the Detroit-Livonia-Dearborn area registered an 11% jobless rate, not allowing for seasonal adjustments, according to the U.S. Bureau of Labor Statistics. It was the highest among the nation’s urban employment centers; the national rate was 7.4%.
The U.S. Census reported that from 2007 to 2011, 36.2% of Detroit residents lived below poverty level, compared with a national average of 14.3%.
Still, Detroit and its suburbs are the home of the U.S. auto industry, Motown music and four professional sports teams. That might explain why overseas investors are buying, Mallach said.
“Other cities have cheap properties, but if you’re in Hungary and you have a little money to invest, you’ve heard of Detroit,” he said.
Some local buyers say tax-delinquent properties are an opportunity to revive Detroit neighborhoods.
Sameer Beydoun, 33, left a New York City real estate career in 2009 to move back to his hometown Dearborn and buy, fix and rent homes in nearby Detroit. His Metro Property Group was the largest single buyer in the county auctions the past two years, snapping up more than 1,000 properties for about $5 million.
Beydoun recounted, as a New York agent, selling a two-bedroom condo in Queens to a Saudi Arabian physician who paid $800,000 in cash.
“I thought, what could you do with $800,000 in Detroit?” said Beydoun, who majored in business and played football at the University of Toledo in Ohio. “That could return $20,000 a month in rent.”