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Thread: Brilliant Investment? One purchase real estate tycoon

  1. #1
    Cyburbian michaelskis's avatar
    Apr 2003
    Somewhere between the mountains and the ocean.

    Brilliant Investment? One purchase real estate tycoon

    For around $4.7 million, you might be able to snag one gleaming, top-of-the-line luxury home in a top market. In Michigan's Macomb County, though, it bought one man 627 homes.

    Bill McMachen, who owns a yacht dealership in Harrison Township, Mich., bagged that bulging real estate portfolio after accepting an enticing offer by Macomb County's treasurer: One buyer could acquire all of the county's foreclosed properties if they just paid the amount equal to all of the taxes owed on them -- $4.72 million.
    Further on it notes that the average price per home is about $7,500 each. I think that even the worst ones are worth more than that. I personally think it is genus on his part. If he has the cash at hand, then he can make an awesome quick return.

    Right now, if I had the cash available, I have thought about buying up foreclosures, but I donít have that kind of capital at hand. I have talked to the guy who owns the 3 unit rental house next door to me and told him that if he goes to sell it, let me know. I would convert it back into a single family and likely rent it out. Either way, the house is smaller than mine and does not have off street parking. I would extend the fence along the back property line and side property line (opposite mine) to enclose the two back yards together, and make it as family friendly as possible. However, I do have one personal rule. It is a 100% cash offer without any banks involved. If I donít have the cash, I canít afford it.

    Have you ever dabbled in renting, or flipping real estate? How were your experiences? Do you ever plan in owning more than what you live in?
    If you want different results in your life, you need to do different things than you have done in the past. Change is that simple.

  2. #2
    Cyburbian Tide's avatar
    Oct 2005
    This directly ties back to the "running government like a business" thread.

    Why on earth would any one make this deal? Typical (tax) foreclosure auctions can bring in lots of money to the delinquent tax rolls of a county. Yes the minimum price is the back taxes plus a small fee but if I lived in this county I would be pissed that they made a deal with someone for the bare minimum, especially if my taxes had gone up or will be going up.

    I suspect legal action against the county since this doesn't sound like an "open public auction" and if it wasn't bid properly or announced it could be a lengthy process to figure it out.

  3. #3
    Jul 2008
    Yeah, this seems like a pretty shady deal. The county's rationale for doing this may have been well intentioned but I can't help but think there is some good ol'boys stuff happening behind the scenes. This could end up costing the county more in the end due to lawsuits.

  4. #4
    Cyburbian btrage's avatar
    May 2005
    Metro Detroit
    I live and work in the County. The City I work for had dozens of these properties. There's more to the story than what's being reported.

    Some of the properties are not worth $7500, at least where I work. We're talking about some houses that have been condemned and need structural work.
    "I'm very important. I have many leather-bound books and my apartment smells of rich mahogany"

  5. #5
    Cyburbian WSU MUP Student's avatar
    Mar 2007
    Lowering the PCI in the Hills
    I would echo what btrage said about some of the properties not being worth $7,500.

    I live and work in the neighboring county (and have previously lived in Macomb County and spent most of my youth there since that's where I went to school and all my friends lived there, although I lived just a bit further east) and traditionally, there has been a big effort in SE Michigan by all of the county treasurers to avoid allowing residential properties to go into tax foreclosure and the ones that do eventually make it to the auction block are typically clustered in certain communities in each of the counties out here, and even then they are clustered within certain neighborhoods in those communities. Also, remember that the tax foreclosure process is much longer than the bank foreclosure process so that allows much more time for the homes to fall into disrepair. Without looking at the list of properties that the investor purchased, I can picture where most of them are probably located and these are likely homes on postage stamp sized lots, surrounded by industrial uses, in under-performing school districts, with relatively higher tax rates, etc. Not exactly a recipe for success

    Over the past couple of years I've also been keeping an eye on my county's list of tax foreclosures to see if there is anything worth my time or money (honestly, I just keep an eye out to see if my neighbor's house ever makes it onto the list because I would buy that up and kick him out faster than you can say Burgermeister Meisterburger) and nearly anything that you would buy at here at the tax foreclosure auction for less than $10k would probably need a minimum of $50k in improvements just to make it habitable again.

    However, that's not to say that there are not bargains to be had in the tax foreclosure process. If this bundle also had a few industrial or commercial properties on desirable corridors, he could probably recoup quite a bit of his investment quite a bit quicker on those than on the residential properties. Or if the investor has the time and energy to sell off the residential properties in smaller bundles or one-by-one and cover any carrying costs in the process, he could come out ahead too.

    As for the legality - as long as the county advertised that the auction could be avoided if a single buyer were willing to pay the $4.7 million for all properties, then I don't see that there will be an issue. I'm not saying it was the smartest deal that the county could have made in the long run, but the county is not in the business of being a landlord and gaining some income immediately and getting these properties back on the tax rolls is probably worth more to them than potentially only selling a fraction of them (the most desirable properties) at this round of the auction and holding onto the rest until the next round and hoping that they sell then.

    I've never dabbled in real estate or flipping though it is something that interests me. I have a real estate sales license and have considered going into residential sales but never made the leap. I keep my license with a broker who lets me just hold it with him in case I ever want to do so (I always figure that if I were to get laid off, it would be something I could do for some potential income while I look for something else). The flipping or rental aspect doesn't interest me so much as just the traditional sales game does though. Flipping or being a landlord requires a bit more of an entrepreneurial spirit than I certainly have.
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  6. #6
    Cyburbia Administrator Dan's avatar
    Mar 1996
    Upstate New York
    Blog entries
    Quote Originally posted by michaelskis View post
    Have you ever dabbled in renting, or flipping real estate? How were your experiences? Do you ever plan in owning more than what you live in?
    I was an accidental flipper in Denver. I bought my house in a neighborhood about two miles from downtown, that was on the verge of gentrification. My real estate agent wasn't kidding when she told me I got the last bargain in the Highlands, the market in the area was that hot. My improvements were simple; upmarket scratch-and-dent appliances from Sears, new reproduction door and window hardware, new reproduction lighting, stripping woodwork, neutral colors with Pratt & Lambert paint, painting the basement walls and floor a much lighter color, and Decora switches and outlets. There was a bidding war when I sold.

    I'm one of many "accidental landlords" owning property in the Cleveland area. I still own my old house, and rent it out through a management company. All the improvements I made to it really didn't help the value, but it made it more appealing for prospective tenants. I really don't make a profit on it; in fact, there's a little bit of a loss every month. However, the tenant pays the mortgage, and I now see the house, and the expenses I put into it, as a part of my retirement fund.

    Around where i live now, there was never a market crash. Real estate prices are on the high side for upstate New York; maybe about 50% to 100% above the Buffalo/Rochester/Syracuse market, with the very high property taxes typical of UNY. A quirk of the housing market here is well-off hippies that like things "natural", so thus the phenomenon of neighborhoods that are gentrified, yet still look quite run down. There's not many bargains to be had. When I buy, it'll probably be in the city's ghetto, but within walking distance of downtown.

    Every town in this county bans fracking or has a moratorium in place. In the not-so-progressive county next door, it's the opposite. That county has always been something of a relief valve for area workers, mostly working-class or employed in the trades, who either couldn't afford housing here, or felt like that county was a better cultural fit. If fracking arrives in the state, I'll seriously consider snapping up a small house there.
    Growth for growth's sake is the ideology of the cancer cell. -- Edward Abbey

  7. #7
    Cyburbian imaplanner's avatar
    May 2004
    If I had a nickel for all the great real estate deals I would have jumped on if I had any money.....
    Children in the back seat can cause accidents - and vice versa.

  8. #8
    OH....IO Hink's avatar
    Jan 2005
    Hang on Sloopy...land
    Around these parts we are seeing more $150k foreclosures so this idea of spending $4m and getting 600 houses seems like a deal, but if the value is not even 7k, then the cost of land is all you are getting.

    I have my old condo being rented out. We tried to sell it in 2008 and had no luck. We found renters and have been renting it out ever since. I don't love being a landlord, but they cover my costs and a bit more every month. If/when they move out, I am going to have to invest a bit to get it looking pretty, then try and sell it again.
    A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. -Douglas Adams

  9. #9
    Cyburbian DetroitPlanner's avatar
    Mar 2004
    Where the weak are killed and eaten.
    In order to get that deal, the buyer had to buy all of the properties in the County's portfolio. As mentioned earlier in this thread, it may be the suburbs, but its still Detroit. Not all Detroit suburbs are full of grand mansions. There are lots of houses that have stood vacant for years and have been stripped to the bone. These have also been left open to the elements. It is doubtful the developer will do anything with these for a long time, keeping them eyesores and depressing the values of other properties in the vicinity. These properties will most likely have thier tax clock reset and be back on the market in a few years once they are foreclosed on for non-payment of taxes, again!

    Hink, in order to get the land, you will need to tear down the property. This will mean that the landlord would have about $15k into the land in an area where homes will be selling for not much more then that. When you lose 400,000 good paying manufacturing jobs in a decade, it has a profound impact on the region and while the rest of the region suffered a cold, these neighborhoods got the equivalent of pneumonia.

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