Detroit Land Bank Properties offer a super cheap way to get started in the Detroit market.
Or so it seems….
It’s easy to scroll the Detroit Land Bank Authority (DLBA) website and marvel at the seemingly dirt cheap properties. It’s also extremely simple to buy one of these properties online, some immediately.
The reality is while properties sold by the Detroit Land Bank tend to be inexpensive, they almost always require a lot of work. Oftentimes the amount of money needed to renovate these houses exceeds the after repair value.
Still, there are situations where it makes sense to purchase Detroit Land Bank properties.
I know firsthand.
In 2019 I actually purchased a duplex from the Detroit Land Bank. I recently finished the rehab and successfully passed my final inspection to have the DLBA release their interest.
While that experience is best suited for a separate post, let’s dive into why you may (or may not) want to consider buying Detroit Land Bank properties.
What Exactly Is The Detroit Land Bank Anyway?
The Detroit Land Bank’s history stretches back to 2008. While I could write at length about the DLBA, that’s beyond the scope of this post.
What we really care about is the fact that the Detroit Land Bank was established to essentially absorb unwanted Detroit properties.
These are properties that went to tax foreclosure, went up for auction, and failed to find a buyer.
None.
Not at any price.
That’s how bad things were in Detroit for a while.
Now, the Detroit Land Bank is responsible for selling these properties, overseeing compliance (to make sure they get fixed up), and some other things.
The DLBA sells properties through five different channels. But in my experience you’ll likely only be dealing with two of these.
Channel One: Online Auctions
Auctions are exactly what they sound like, and they happen daily online.
The condition of auction properties can be all over the place. And you’ll see prices reflect that. Some will go for low single-digit thousands and some will push $100,000+.
In my experience, this pool of Detroit Land Bank properties is likely your best shot at finding something worth purchasing to rehab.
At least if you’re a seasoned real estate investor.
Channel Two: Own It Now
The second major channel of Detroit Land Bank properties comes through their Own It Now program.
These are similar to an auction but with some slight differences. Own It Now properties are always available to purchase and offers start at $1,000.
Once a property receives an offer it starts a 72-hour clock, opening public bidding for the duration. At the end of the 72-hours the house is sold to the highest offer.
The trick here is you don’t get to see what others have offered on the house. It might be $1,000 or $10,000… so you’re kind of shooting in the dark hoping to get it for as little as possible.
In my experience, Own It Now properties are generally in poorer condition than auctioned properties. They also “do not receive the same level of debris clean out” as auctioned properties.
I’ve bid on a few Own It Now properties in the past, and walked some firsthand. They are often filled with junk and potentially dangerous to enter.
OK, so are either of these channels actually worth buying from?
Pros To Buying Detroit Land Bank Properties
Just about every property you see available from the Detroit Land Bank is going to need some serious rehab.
And I don’t just mean your standard, “Oh this is dated and needs some cosmetic love” type stuff.
I’m talking about large holes in roofs that have been present for a long time, fire damage, major structural issues, a complete lack of plumbing and electrical, etc.
All of these things are pretty common, if not expected in these homes.
So what, then, could possibly be the benefit to buying properties from the Detroit Land Bank?
Positive #1: Detroit Land Bank Properties Are Cheap
As you might expect, these properties tend to be quite cheap!
How cheap?
You can still get houses, particularly through the Own It Now program, for $1,000.
Whether these properties are actually worth the trouble or cost of renovating is a totally different story.
But the reality is if you want to go dumpster diving, there is no better place to do it than inventory from the Detroit Land Bank.
I can think of a number of ways I would look to build wealth through these sorts of properties if I only had a few thousand dollars to play with.
So whether these super cheap properties are your cup of tea or not, it’s a major positive for lots of folks. Where else can you buy any sort of standing structure in a major city for $1,000?!
Positive #2: DLBA Properties Provide Consistent Dealflow
But not every property that’s sold through the Detroit Land Bank is a cheap, negative ROI project. If you know what you’re doing you can find decent properties from the DLBA.
I’ll get into that a bit later in the post.
The reality is, the DLBA provides consistent deal flow for active and aspiring investors. In fact, I call the DLBA inventory “quasi off-market deals”.
Why?
The reality is, not everyone wants to tackle a larger project like what’s usually on offer from the DLBA.
And even the ones that might be in decent shape… investors need to consider whether or not they want to deal with the Detroit Land Bank’s compliance and oversight process.
For good reason, many don’t!
As a result, while all of this inventory is available to the general public, a large swath of those folks simply aren’t going to want to purchase it.
This is why I call it “quasi” off-market deal flow. It’s there for all to see but most aren’t going to be competing for it.
Downsides To Buying Detroit Land Bank Properties
So why aren’t most people willing to compete for it?
I’ve already hinted at some of the reasons, but let’s dive in a bit more and understand what you’re getting yourself into when bidding on, or even considering, a Detroit Land Bank property.
Downside #1: DLBA Compliance & Oversight
When you buy a Detroit Land Bank property you’re signing up for a lengthy process. At closing, you actually take possession via a quit claim deed and then sign a quit claim deed right back to the DLBA.
This interest is held by the Detroit Land Bank until you “achieve compliance”.
Basically, you need to hit a bunch of different milestones before the DLBA is willing to sign off on everything and release their interest.
To be honest, this isn’t all that challenging, and there are different approaches and strategies you can take with it.
But it can be overwhelming, burdensome, and a lot of red tape. And the DLBA puts a 6-month deadline on you achieving compliance or they are legally able to take back the property.
No pressure!
Oh, and you’re also supposed to be pulling permits for all the work you do.
That all sounds pretty scary.
The reality is it’s far more nuanced than that. I actually managed to drag my entire renovation out for nearly four (4!) years.
But it took quite a bit of finagling 🙂
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Downside #2: Super Distressed Properties
There was a time when Detroit Land Bank properties were actually both super cheap and in pretty darn good condition.
However, as Detroit has come back, those days are long gone.
We’re now largely at the bottom of the barrel in terms of DLBA inventory. And don’t forget, many of these properties were absorbed by the Detroit Land Bank many years ago.
That means distressed properties that have been sitting for many years and becoming increasingly more distressed.
As a result, you’re going to spend a lot of money bringing these properties back to life. And if you don’t have a strong team of contractors on-the-ground you’re going to struggle.
For perspective, I ended up fully gutting the duplex I purchased from the Detroit Land Bank in 2019. We put about $150,000 into the rehab.
Luckily, I only paid $8,000 for it.
It’s now rented for $1,200 per unit, making it a nice little cash cow.
The thing is, you can’t get them that cheap anymore. At least not in areas worth buying.
Downside #3: Good Detroit Land Bank Properties Aren’t Cheap
Now that I’ve reached compliance on my Detroit Land Bank duplex I’ve been poking around the auction site to see if there’s anything worth purchasing.
I knew it was a long shot, but it’s kind of fun to browse, especially if you understand all the pockets of the Detroit market and can easily assess if something might be worth buying.
A duplex near my two in Russell Woods caught my eye. It was even more interesting because we’d recently sold a BRRRR duplex to a client on the same block.
I was excited to watch the auction and I figured I may throw in a bid if the price stayed reasonable enough.
But with 2 hours left in the auction it was clear this thing was going much higher. My wife called it:
I even took to X a half hour later to tease it, knowing that most folks would not believe some junky DLBA property would go for such a high dollar amount:
When all was said and done, this duplex at 2990 Clements went for a whopping $75,400!
The property is in pretty decent shape for a Detroit Land Bank property. And it’s in a pretty strong pocket of Dexter-Linwood.
And while it’s in ok-ish shape, considering it’s being auctioned by the DLBA, it’s by no means a walk in the park.
There’s a lot of work to be done there. But here’s the money shot:
For those unaware, that’s knob and tube wiring. It’s really not safe anymore and doesn’t meet standard electrical code.
In fact, you will NOT be able to get insurance on a property with knob and tube wiring.
You must to take it out.
That means rewiring an entire up-and-down duplex… through plaster and lath walls.
I can’t even tell you how much that would cost because I’ve never been insane enough to do it. And I’m insane enough to do a lot of dumb stuff!
I know it would be pricey, likely to the tune of $20,000 – 30,000+, and you’re then dealing with a bunch of plaster and lath damage that you’ll have to painstakingly repair.
My view is it’s just far simpler to gut the place and do it right. Then you might only spend $15,000 or so on rewiring it (yay!).
But then you have the demo costs, drywall, etc.
While this property is definitely in decent condition, don’t be fooled! It’s not going to be a cheap rehab.
The property we sold was in similar condition, required $40,000 in rehab, and did not have knob and tube wiring.
And we sold it for $11,000 less.
Who Should Be Buying Detroit Land Bank Properties
OK, so now you understand the pros and cons of buying a Detroit Land Bank property.
It’s probably clear to most of you that you’d be in over your head on any of these offerings from the DLBA.
So who the heck is buying them then?
Experienced Investors With Established Teams
Well, there’s folks like me.
I’ve been investing in Detroit since 2019 and have done my fair share of large rehabs and even full-gut renovations.
Again, I’ve successfully done a DLBA rehab and I’d do one again if the numbers made sense.
But I have a super strong team on the ground, contractor relationships, intimately understand the city and where values make sense to do projects like these, etc.
Most people don’t have that.
Simply put, buying Detroit Land Bank properties is a terrible idea for out-of-state investors or anyone without a strong ground team.
But there’s one more type of buyer that these properties make a ton of sense for.
Local Detroiters Putting In Sweat Equity
Buying Detroit Land Bank properties is a massive opportunity for local Detroiters.
I was in a very active Facebook group a few years back with a ton of folks that would buy a house for $1,000 and move into it.
Yep, they would move into a garbage house with perhaps a hole in the roof that generally wasn’t livable. And then they’d get to work making it “livable”.
Then they’d reach compliance, own it, and start slowly doing the real work of fixing it up properly and making it a home.
I loved watching these success stories unfold.
The hustle, the “I’ll help you with X if you can help me get my water on”, etc. It was super cool to witness these folks create something for themselves from essentially nothing.
And it may just create some generational wealth. It’s pretty special.
But these two DLBA buyer profiles couldn’t be more different. And it leaves a large gulf in the middle, many of which are extremely curious about and attracted to the idea of these cheap homes.
Chances are they aren’t for you, and the cons grossly outweigh the pros. You’re far better off MLS shopping or working with me to do an off-market BRRRR than you are tackling a Detroit Land Bank property.
That said, if you’re local to the market and you want to learn a TON about renovations, there’s no cheaper way to do it than with a Detroit Land Bank property.