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...)

    Here's what it looked like.

    Zestimates

    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.

    rsbutton

    Warning - Viewer Discretion is Advised....


    salesdetheartattack

    Huh?

    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:

    • 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.

    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!

{ 10 comments… read them below or add one }

geoff October 31, 2014 at 5:15 am

Great advice and guidance. Time for a reality check. Thanks.

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Gary O'C. October 31, 2014 at 7:46 am

Very plain and straightforward! Almost takes ones breath away, the trouble one COULD get into!

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trevor alexander October 31, 2014 at 9:55 am

thanks! I have been miss using Zillow for quites some time. keep these tips coming, please!!

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Antonio Cordero October 31, 2014 at 6:59 pm

Great info. Thank you. I, myself own a row house on Somerset Ave. in Detroit, for income purposes. I bought it for less than $10,000. I then sank another $16,000 in it. It was then rented for $725/mo. I get $650/mo. from it.

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Rick Dawson November 4, 2014 at 4:19 am

Yes, renting in these neighborhoods can be profitable. Just don't dive in too fast until you see what it's like renting over the course of a couple years. Things can seem OK at first but you may find yourself doing another $16,000 rehab after a couple tenants 😉

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chul kim October 31, 2014 at 7:39 pm

thank you for showing discrepancies between estimates by Zillow and actual market prices.

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KEN PIANIN November 2, 2014 at 7:37 pm

I HAVE SEEN THESE HIGH FIGURES FROM ZILLOW BEFORE OR THEY ARE WAY OFF HIGHER OR LOWER THAN ACTUAL SALES PRICES OR SOLD PRICES. MANY INVESTORS USE THEM FOR VALUES BUT NOT ME.

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John Beisel November 3, 2014 at 2:43 pm

Yes, I Real Eye Opener for sure....Thank You.

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Michele November 1, 2014 at 4:50 am

I sent you an email today saying that the link for "Part 1" had an error message and I was not able to view it and wanted you to resend "Part 1". Hope you will. Above info on "Part 2" is useful. Love your comment about 'ceiling' rather than 'floor'. Good stuff!

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Jep Tatum November 1, 2014 at 5:57 pm

Very good tip.

Jep

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