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 Buying Investment Real Estate for $1
By: Darin "Sid" Cameron, CRS
Mon, Jul 24th, 2006 4:48 pm

Had someone this week ask...

"I want to get into real estate investing and need to know how one goes about buying the $1 homes from the government you hear about.  What kind of profit and turn around could I expect on those?"

My Response:

You really have to know what you’re doing to play in that game.  Those $1 homes are generally abandoned and in condemnable conditions (or worse).  In St. Louis City they are usually owned or controlled by the city’s Land Reclamation Association.  A typical story is that they were foreclosed on for back taxes 20-30 years ago (or more).  Because nobody wanted them, they've been vacant and decaying for all that time.

So as a rehabber, these aren't "starter projects" that just need a little landscaping and a fresh coat of paint.  Typically they're going to be homes that are- at best- missing windows and roofs, and at worst might be missing exterior walls and internal flooring.

The next issues you're going to run into is that lenders want to see established "Comps" (an industry term for comparable home sales).  Frequently $1 homes are in neighborhoods that haven't had a lot of high priced sales in recent years- and that makes it difficult for a buyer to get a lender to fund the purchase regardless of how great of a job you do rehabbing.

Kimberly and I currently represent a developer down in Fox Park (west of Jefferson, south of I-44, west of Soulard) where the city owned entire blocks up until the last few years (when developers started to snap them up).  Our developer was able to get seven homes (five on one block, two on the next one over) which is what made the restoration project viable to start- i.e. they owned enough of the area that they could create a market for their product once it was complete.

There was only one home out of the seven that was sold for $1, but I don’t believe any of the others topped out at more than $40k (I know some were $10k-15k).  Because they broke the ice, there are now two other developers rehabbing on our main street helping to drive comps for the later projects higher.  I believe we’re down to three abandoned homes on the street.

By the way, that $1 “house” was actually nothing more than two and a half walls!  It was a two story home built around the 1900's that had a fire and over the years the back wall completely collapsed and the second story of a side wall had as well. There was no ceiling, floors or windows, if you had pried the front door open you would have fallen straight to the basement.

The only thing that made the project restorable was federal and state grant money where the builder gets reimbursed at closing for a percentage of their construction cost to rebuild them (in return the builder agrees to restore them to historical accuracy).  That percentage will vary by project and you either need to partner with someone who specializes in it so the paperwork and forms are filled out correctly or consult was a specialized attorney- because the paperwork alone can take days.

But bottom line, without the grant money, these projects wouldn't be financially feasible.

On top of grant money, there's also tax abatement that you'll want to secure.  Think of that as a selling “gift” to the eventual buyer from the city.

How tax abatement works is basically the city figures it's not getting any tax revenue off of the homes setting vacant and decaying, so they lock the property taxes at the pre-redeveloped level for the buyer for a set number of years as an incentive to get a developer to rehab and buyer to buy the home.  When the abatement runs out, the city had a newly rehabbed home to collect "real" taxes off of.

Hope this helps.

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Darin "Sid" Cameron spent 15 years working in the technology industry which in 1998 relocated him to St. Louis. In 2004 he took over web development tasks for Kimberly's real estate team and later became the full-time Marketing and Operations Director in 2005. In 2011 Sid launched two brokerages, The Realty Store, Inc. and Realty Referral Partners, Inc, while continuing to perform marketing and operations for Kimberly's team. Sid holds a real estate broker's license in Missouri, CRS certification and was the first CyberStar in the St. Louis area.
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