Valuing Tax Sale Properties - Look Behind AND Ahead (Part 2)
- We left off yesterday with a picture of perhaps the "perfect DeedGrabbing neighborhood", by all appearances - in Detroit! We looked at Zillow's estimated values, and the neighborhood had solid $38k - $50k values. Not too low, not too high (well, actually they are NEVER too high...)
- We might hope to get a few hundred bucks for a property (you'll see why I say "might" tomorrow...)
- We could never realistically expect to get more than $2000 or $3000 for a property in this neighborhood - there isn't a single sale over $5000 in this map and most are about $1000.
Here's what it looked like.
Before we head out there to make our fortune...
Let's just do one thing real quick - drop down the menu you see on Zillow, above the map, so you can see just the sold properties in the neighborhood.
If that checks out, we may be onto something.
Warning - Viewer Discretion is Advised....
Yes, I had to look at this several times myself too to make sure I wasn't looking at monthly rental rates or something. In this neighborhood, it seems you are doing well if you get $3500 out of house. Most properties are bringing in a few hundred bucks - on the open market!
Some poor guy took $351 for his property and perhaps was able to buy a 32" TV set and a good meal...
I hope you will now always remember the retail pricing (Zestimate) vs. reality based pricing (a few hundred bucks!) for some of the worst areas to be selling real estate in the U.S. This phenomenon applies, to a lesser extent, in just about every lower-priced neighborhood. Though we're seeing a factor of up to 100x the actual value being displayed for Zillow's estimate here in Detroit, and this is an extreme, houses selling for 10% of the estimate is commonplace throughout the country in low-priced areas.
Trust me, you don't want to be relying on a house to sell in this area.
The Purpose of Finding Past Sale Prices Is_____________?
Pop quiz: Why are we looking at past sales first when trying to come up with a value for a property in this area?
Because they will give us a reliable estimate of value for the property? Nope. Not even close.
Comps prove to us a minimum level that our property COULD sell for. A "ceiling" if you will. Not a floor. In our Detroit neighborhood here, we've learned:
Past sales tell us how good things COULD be if everything works out. We've looked back, and it was ugly. I wish I could tell you that "looking foward", which we'll do tomorrow, will give us relief. But you ain't see nothin' yet!