I love Detroit. It’s a city of food, music, and hard working people. Sure, we’ve taken our hits but we always seem to come back swinging. That’s what kept me investing here—even as the ‘Big Three’ turned on their heels and the housing crisis felt like a sucker punch to many residents who lost their homes to foreclosure. The city is rebounding in a big way more recently, thanks in part to programs that are improving neighborhoods and their values.

As a Detroit real estate investor today, I was delighted when the Detroit Land Bank Authority (DLBA) finally came in to play, reducing blight and raising property values across our Motor City. Along with the Wayne County Treasurer’s Tax Foreclosure Auction, it became one of the city’s main auctions of distressed properties. But while these programs are helping our beloved city, if you intend to grow your portfolio by buying investment property from house auctions in Detroit, Michigan, you need to go into it with your eyes wide open. Let me share my experience with you, so you know what to expect.

House Auctions in Detroit Michigan: What You Need to Know

The Detroit housing market is looking up. It was one of the first cities hit by the housing crisis that led to the Recession of 2008—but it was also one of the first cities to begin recovering from it. Now, home sales prices have increased 167% in the last five years, including a 13.9% year-on-year increase in July. The number of sales is increasing as well and, in correlation, the average number of days a house spends on the market is falling. Residential foreclosures are becoming more rare too, down 84% since 2015, from 9,111 then to 1,517 homes at risk this year. That trend, like rising home prices, is expected to continue.

This is great news for the city as a whole and for investors on the sell-side. We might have to look a little longer for the right deal, but the opportunities for growing your real estate portfolio are still available for now and their values are rising. That’s why many new investors are turning to house auctions here in Detroit as a source for a cheap buy-in. There are some risks in buying from them, though. Here’s how they work and what you need to expect.

Wayne County Tax Foreclosure Auction

The Wayne County tax foreclosure auction still has a lot of properties available with fairly minimal upfront costs. Currently, there are almost 3,000 Detroit properties going on the block in the September. The minimum bid in the September auction is equal to the total taxes due on the property plus expenses incurred in the foreclosure and auction process. The Summer tax payment on the property is due at the time the winning bid is paid as well. Properties that do not sell in the September auction are put up for auction again in October, with a minimum bid of $500.

The auction takes place online only and you can participate by registering with the treasurer then paying a small registration fee and a deposit. The deposit ranges from $2,500 to bid on one property to $10,000 to bid on an unlimited number. The County Assessor has also identified “premium” properties that require a $25,000 deposit instead. Fees and deposits of unsuccessful bidders are automatically applied to the October auction, unless the bidder requests a refund. Winning bidders have 48 hours to make payment.

Sounds pretty simple, right? Well, there are some details you should be aware of. While the tax foreclosure auction has low barriers for participation, bidding on the most desirable properties can be fierce, with winning bids topping $100,000. As a new investor, can you compete at this level by having that amount tied up? Also, these properties come with some significant risks. Tax auction properties are sold as-is and are in very poor condition. You are responsible for making them right again, including toxic substance cleanup that can cost a pretty penny. You will also take on the responsibility for all liens and encumbrances on the deed, as well as potentially evicting previous owners or even squatters. If you don’t have experience, that’s a lot to navigate. Frankly, even though I have a good deal of experience, I pass too.

Detroit Land Bank Authority

Properties that are not sold in two consecutive Wayne County tax foreclosure auctions are turned over to the DLBA. The DLBA has an ongoing auction process with bids on most properties starting at $1,000 plus back taxes. You can only bid on one house in a month, with a maximum of nine purchases per year, and you have 30 days to close on the sale. Like the tax foreclosure auction, the DLBA also sells its properties as-is, but it makes it easier for you to be an informed bidder. The program does a title check before putting the property up for auction and offers a property condition report and estimated minimum cost of repairs.

The cost of repairs is not the only issue you have to consider when you purchase a house from the DLBA, however. These houses come with significant timeline and documentation conditions you must meet. Within 30 days after winning, you have to present a plan of work and receipts for the materials necessary for the renovation of the house. Within six months, you have to present a certificate of occupancy or certificate of approval and prove that the house is occupied. If you buy a property in a historic district, you are allowed nine months for this, but you also face restrictions on the changes you can make to the house’s appearance. I strongly advise you to think carefully about whether you have the experience to meet this tight timeline before you invest in a home from the DLBA. If you fail to meet the deadlines, you forfeit ownership of the property, lose the money you’ve spent on it, and you are barred from participating in future auctions.

Rather than buying a mystery house from the county treasurer or making renovations at high speed on a house from the DLBA, I prefer to buy directly from the owners of distressed homes. That way, I cut down on the paperwork and risk involved in the transaction while also being able to do suitable due diligence on the property. Once the house is mine, so is the task of setting rehab deadlines. But being able to find these distressed homes might seem like next to impossible for many new investors. Let me assure you, it’s not.

Grow Your Portfolio Through Qualified Leads, Not Bids

While the Wayne County tax foreclosure auction and the DLBA are truly helping to turn around our Detroit real estate market, providing opportunity for certain homebuyers, they are not the easiest way to get investment leads. Dealing directly with motivated sellers has proven to be a much better way to grow my portfolio. You are probably asking how I find these homeowners. The truth is that I don’t. They find me.

As an independently owned and operated HomeVestors® franchisee, I leverage the nationally-known “We Buy Ugly Houses®” advertising campaign. Motor City residents who need to sell fast know they can call on a trusted real estate investor and get a fair offer. Distressed homeowners get out of an “ugly” situation and I can acquire a house that is usually in better shape than what you see at auction. It’s a great deal for everybody. It’s so effective that HomeVestors® franchisees like me have bought over 140,000 houses since 1996.

If you’re looking for a better alternative for growing your portfolio, call the “We Buy Ugly Houses®” team and find out how you can get qualified leads, too.

Each franchise office is independently owned and operated.