Detroit House Flipping Capstone Project
- Length: 10 pages
- Sources: 14
- Subject: Urban Studies
- Type: Capstone Project
- Paper: #28079826
Excerpt from Capstone Project :
Detroit House Flipping
Detroit Housing Revamp
Detroit is a city that is indeed behind the proverbial "eight ball" in a lot of ways. The nastier parts of Detroit are full of abandoned and burned houses, crimes go unreported or at least unanswered and local agencies are uniquely pathetic at completing and providing even basic services at a satisfactory level. However, not unlike work industries and neighborhoods of yesteryear, it is possible for the Detroit housing market to see a rebirth. This would need to be done carefully due to monetary, cultural and economic pressures but it is entirely possible. While the house flipping alone would not solve the problems that Detroit has, it is absolutely part of the overall solution and the free market is the best source to use as the government money well is currently tapped out.
There are some that have stated that many large portions of Detroit and surrounding or nearby areas such as Flint should simply be razed and left bare. There is probably some wisdom to this given the exodus of people that have left the area not unlike what happened in New Orleans after Hurricane Katrina ravaged many neighborhoods with most of them being poor and destitute. However, housing and homes are needed and any person or entity rehabbing or building houses in the Detroit areas needs to be very careful because doing so the wrong day can lead to loss of money or complaints about outcomes or events like gentrification and racism.
However, there are some areas in Detroit that are worth reviving and this can be done without causing home prices to skyrocket. However, there would be a concern in spending a lot of money on any given house because there would fear of not being able to make back even what was paid for the house let alone any profit. However, while things are not that bad in Detroit, they are still pretty awful. Even so, there are positive developments that are starting to spring forth in the housing, government and private business arenas in Detroit. Ford and General Motors are starting to thrive again and Chrysler is also faring decently even though they are now owned by Italian automaker Fiat (Healey, 2014).
Before going any further, the industry and area in question will be described and detailed. The thing about home upgrades and maintenance is that very few home owners have the means or the knowledge to do themselves. Add in the fact that home upgrades through conventional contractors are generally quite expensive due to the profit motive of the contractor as well as the difficulty in doing changes of any large size or scope when the house is occupied. However, when a home is empty and owned by the person investing the money for future sale and that person has the knowledge and connections to significantly rehabilitative and fix the house without an insanely large expense, then there can be a quick "flipping" of the house. The house is bought, fixed up in fairly short order and hopefully sold before more than one or two mortgage payments are necessary if the house is financed. Even if the house is bought outright, the house has to then be sold for more than what is paid plus what is sunk into the house to make it better for a future homeowner.
The general focus of flipping a house would normally center on the kitchen and the bathrooms first and then the infrastructure of the house like the plumbing and electrical (Inspect A Property, 2014). However, any rooms that have obvious problems and flaws like holes in the walls or ceiling, bad carpeting and so forth will need to be fixed as well. However, these expenses are usually rather minor so long as the structure of the house is not compromised and there are not very expensive problems that must be fixed as part of any renovation such as mold and asbestos. The latter, even if present, does not always have to be fixed but if the asbestos has to be disturbed it then has to be removed and this cannot be done casually as asbestos can cause cancers such as mesothelioma. There is also the valid concerns of comparing the costs that are needed compared to the cost of homes in the area. In areas like Detroit, there are probably homes that can be had for free or close to it but any house flipper would probably need to aim higher so that the overall price range from purchase to eventual sale is wide enough to make the business risks worth the effort.
Another facet that has to be taken into account in the house flipping industry is the ongoing economic and other fluctuations that can occur. Housing prices are usually fairly predictable in that neighborhoods rise and fall on their own but they almost always rise. Houses are touted as the primary way for any average person to create wealth as they can be financed over fifteen to thirty years and they hardly lose value as compared to other assets like cars and electronics. However, the housing market is not without risk. One example of this is the fact that some areas get economically depressed and destitute quite quickly and this has manifested quite starkly in Detroit since the automakers started struggling and the Detroit area does not have much to hang its hat on industry-wise other than the auto industry. However, there are more widespread examples of housing prices going into the proverbial toilet and the recent housing bubble bust that started in the mid-2000's and got very nasty during the Great Recession from 2007 to 2009 has still not healed and this has been truer for some areas more than others. One such area has been Detroit. In terms of the wider effects and phenomena that have hurt both Detroit as well as the wider country has been the fact that loan money for homes was entirely too easy to get for the longest time and it caused home prices to rise to an unsustainable level (Vogel, 2013). Not unlike gas prices getting to a point where the market could not support it and/or the consumers would not accept it, the price's floor fell out because the demand was eviscerated (Foran, 2013).
Regarding a forecast for the housing industry, the wider national market is starting to crawl back ever so slightly and this path should continue to arc upward and onward in the coming years and decades (Esswein, 2014). It is moving fairly slowly right now because while middle- to upper-tier jobs are basically back to pre-recession levels, the same cannot be said for lower-level jobs that are low pay and/or low-skill and the auto industry is certainly included in that summary. Further, a lot of the higher jobs in the lower tier have trended towards lower pay and this has hurt the middle class (Lowrey, 2014). As noted before, Ford and General Motors are doing fairly well although the latter has been having major issues with recalls relating to their ignition switches in cars that are as old as ten years (ABC, 2014). Interest rates are going to be a key indicator of progress in the housing industry and they have remained in the basement since being lowered to where they are now during the Great Recession (USNews.com, 2014). However, they were low before that but not as low as they are now. So long as economic progress remains perpetual, even if it is small, the industry should arc up gently over the next generation but the chances of any major shift in rates or home prices is unlikely for at least the near future although not everyone has refinanced for whatever reason (Bradford, 2012).
Government regulations in general really affect the lenders more than the buyers but there are effects and conditions that will affect all buyers to some degree but buyers in Detroit even more so. The first effect would be that getting a mortgage, assuming that is the route taken by this group in whole or in part, will be harder to pull off than it was before as cash reserves and steady income will be a fairly necessary or at least optimal prerequisite to getting any major funding from banks. If the group can operate in a cash only basis at least as it relates to buying houses, that would help avoid a lot of those problems. Another issue is that the clarion calls about gentrification are quite likely to happen in Detroit for the flipped houses if the margin or profit is too large and/or if the price point of the home as sold post-flip is too high for buyers. This focus gets all the more strident if the prior residents of the area are gentrified out of the area. Precisely this is being batted about when talking about rebuilding the ravaged areas in New Orleans that were laid to…