The era of the $1,000 house...

From a recent CNN Money report comes this story. The real estate market is so awful that buyers are now scooping up homes for as little as $1,000. The last ime that these homes were this cheal was likely back in the 20's when many were built. There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.

In Detroit for instance, Realtor Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com. With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.

Fixer uppers
These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances. Often buyers are legally required to rehab these homes to bring them up to code. In Detroit (and many cities right around Detroit), buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report and have those repairs inspected and passed by the City Building Inspector. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in. But even factoring in these costs, they're still bargains. And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties. In the Detroit area many abandoned foreclosed houses have been stripped of all plumbing and electrical wiring, amking them a real challenge to rehab.

Rehab money
Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases. Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan. He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.

Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing. Most of the buyers are investors who have the wherewithal to rehab the porperties and turn them into rentals, but some are being bought by young, first time buyers with dreams of fixing them up and living in them. Many of them get in over their heads and the properties end up back in foreclosre with half of the fix-up projects done, when the young buyers run out of money. Those "boomerang" foreclosures make up an increasing percentage of the new foreclosures. I generally advise great caution and lots of thought and planning before taking on a project like this; and sometimes my clients listen to that advice.