Investors head to Detroit for Pinto-priced homes


Quick: Take a guess on what the average sales price for a home in Detroit was for the first couple months of 2009.

If you guessed $60,000 you're off by a factor of ten. The average sales price for a single-family home in Detroit was a mind-blowing $6,035.

The Associated Press reports that the 1,800 homes currently on the market in Detroit for less than $10,000 is attracting the interest of foreign investors, who are buying them in bulk in the hopes of renting them out -- and selling them if the market rebounds.

It seems to make sense -- how much lower could they go? But in the end, it might just be a big headache. Detroit's population has been cut in half since the 1950's and to say the outlook for future population growth is bleak would be an understatement. Detroit currently boasts a rental vacancy rate of 19.9% -- a number that will only get worse as the population continues its decline and vacant foreclosures are bought up by opportunists and added to the rental pool.

Meanwhile, the huge amount of vacant housing will require landlords to invest aggressively in their properties to attract tenants -- when 1 in every 5 homes is vacant, tenants have a lot of leverage, and you still might not be able to charge enough rent to cover the amenities they'll demand -- along with the high property taxes that been plaguing Detroit for years and management fees.

This is probably a great time for long-term investors to take advantage of plummeting home values across the country but I think it's probably better to pick areas with more upside. It's better to get a good home at a great price than an awful one at an amazing price.