Five Good Reasons Not to Buy a $1000 House

It’s true: In some parts of the U.S., houses are going for as little as $1,000.

If you live outside the U.S. you’ve probably seen at least one article describing how some foreign investor is getting rich by snapping up $1,000 foreclosed homes and renting them out or flipping them, but beware. The chances of that actually being true are slim. It’s much more likely that investor is getting rich by selling junk properties to other foreign investors, who then  are stuck with lemons they can’t unload at any price.

Here are five reasons why you shouldn’t believe everything you read:

1. The house is seriously jacked up. Are you able to inspect the house personally? No? Then don’t even think about it. Many foreclosed properties are trashed out of spite before the original mortgage holder ever vacates. If the house has been sitting empty for awhile and the bank is willing to accept $1,000 for it there’s an excellent chance it’s uninhabitable. ‘Scrappers’ routinely strip all metal pipe and wire out of vacant homes, meaning rehab could easily cost you tens of thousands of dollars.
2. The city where the house is located is in crisis. Many of the cities that have the best deals on foreclosed properties are in crisis due to lost tax revenue. This can mean insanely high property taxes (often the worst areas have the highest taxes),reduced services (like fire , schools, and police), high utility bills or broken water/gas meters with a backlog of repair requests, and high crime. In some areas of some U.S. cities, no one will pay even as little as $1,000 for certain properties. As a foreign investor, you should be asking yourself why not. There may be very good reasons.
3. You won’t be able to rent it. At the craziest point during the housing bubble, one popular scam run by unscrupulous brokers was to sell foreign investors slum properties at inflated prices on the promise that they could move to the U.S. and have an instant income as landlords. When the investors arrived, they discovered the homes were overpriced and uninhabitable. In this market however, even a decent little house can take months to rent. Houses in bad neighborhoods can stand empty for a year or more waiting on a tenant.
4. You will rent it but never collect any rent. It takes about six months to get a tenant legally evicted in most parts of the U.S., and during that six months that tenant can do thousands of dollars in damage to your property. Some tenants make a career out of moving into rentals put up by new landlords and then not paying the rent, filing lawsuits for condition issues, and making liability claims for injuries. If you’ve never been a landlord before, at least talk to a few people who have before deciding you can make money at it.
5. The insurance will be unaffordable or unobtainable. Lots of ads for great cheap houses in Detroit are circulating around the internet, but did you know that an automobile insurance policy for someone living in Detroit (the inner city) can cost as much as $5,000 per year? Well, it can. And if you try to keep a car there, you’ll understand why. The same goes for house insurance, which is required if you have a mortgage. In some parts of Louisiana and Florida, home policies are unaffordable. Coastal Florida properties (depending on the area and the property) can run in excess of $10,000 per year for the insurance alone (most policies cost less, but the point is, check before you jump in with both feet–how easy do you think it is to get homeowner’s insurance in New Orleans?).

An old saying advises, “There’s no such thing as a free lunch.”

The same principle applies to the U.S. real estate market.