Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Well, it started.
By “it,” I mean the calls. Lots of calls. From out-of-state real estate investors. Wanting to buy in Flint.
Hasn’t anyone learned anything from losing their shirts in Detroit?
I guess not. Recently, I got a hit on one of my websites from an Arizona guy wanting to sell me a “smoking hot” deal in Detroit for “only” $4,000 that he bought for $1,500. On a boarded up block with a couple of burn downs. And $2,200 in property taxes outstanding.
His rationale? Well, it’s real estate so it has to be worth SOMETHING. He literally pleaded with me to make him an offer.
Sorry, Sparky. Homey don’t play that. Detroit has thousands of homes worth $0. Or even less due to the taxes and water bills.
Now, Flint is getting its 15 minutes of real estate investing fame due to the water crisis. If this has gotten your attention, and you live out of state, then I have three words for you:
Let it go.
Worse than Detroit
You see, as hard as it may be to believe, Flint is actually worse than Detroit in many respects. And that was before the water problems came to light.
At one time, Flint was one of the manufacturing centers of the Midwest. It had a 230+ acre site in the north part of town called Buick City, because that’s where they made them. It began in 1904, and in the 80s, they started scaling it back bit by bit. Until it was closed and demolished in 2010.
At its peak, it employed 28,000 people. Now it’s zero. And nothing of scale has taken its place.
And that was just a portion of the manufacturing that used to happen there. To be fair, there’s still a small amount still happening, but it’s nowhere near the scale that it used to be.
Which has left Flint pretty much a ghost town.
The major difference between Flint and Detroit is that Detroit is surrounded by suburbs, people and business. So it’s a hub for sports and entertainment, and it’s within a relatively short commute from just about all of the suburbs.
Not so with Flint. It’s 60 miles north of Detroit, and it’s pretty much in the middle of nowhere. And it’s a solid one-hour drive away from even the northern suburbs.
Not a pretty picture, is it?
The Water Issue
I read an article on CNNMoney’s site that talked about Flint in general and how the water issue is impacting the still depressed real estate market.
One real estate agent there was quoted as saying that:
"Anyone that bought their home in the early 2000s in Flint with a mortgage is still upside down on their house and they aren't able to move because they can't sell it.”
Flint hasn't experienced a price rebound like other markets have in the past few years, and many residents remain underwater.
The 2008 housing crash that sent the nation's economy into a tailspin hit Flint particularly hard. The city lost about 75% of its real estate value, and homes today are selling for maybe 50% of what they were selling for in 2005.
Another real estate agent reported that the median home price in Flint is $14,000.
And yet another agent said that Fannie Mae recently rejected an all-cash offer from his client on a foreclosure the agency owned because of the water crisis.
She said that “Fannie Mae has temporarily taken homes it owns in Flint off the market to conduct water tests, and that her buyer is aware of the water issue, and is still willing to purchase with cash."
Now it's sitting there empty and can't be sold at all.
The article went on to say that buyers in Flint right now tend to be young couples, investors and renters looking to take advantage of depressed prices and low interest rates. And that rent in the city for a single-family home is about $400-$500 a month, but even at that low rent level, Flint has the highest vacancy rate in the country, with 1 in 14 homes vacant.
The problem is even worse in some areas in the city's center where 1 in 5 homes sits empty.
And to top it off, despite the high number of vacant properties, the supply of homes on the market is still very limited because there are a lot of abandoned homes that haven't been taken care of, and no one is ever going to buy them.
You have better odds at the Greektown Casino in downtown Detroit than you do buying real estate in Flint.
What’s Your Take?
What are your thoughts about the Flint and Detroit markets? Comment below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.