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HBO’s seminal series The Wire put Baltimore’s plight on the map, with crime and urban blight running amok. Now, 16 years after that show ended, it seems little has changed from the city it depicted. The situation has become so desperate that the city is selling off dilapidated buildings for f $1. However, before you dig out the loose change in your pocket to snag a townhouse, remember there are caveats.
There were almost 15,000 abandoned homes in Baltimore as of 2022, blighting the landscape, and Mayor Brandon Scott—as first reported in Bloomberg—is offering up 200 of them virtually free to encourage investors to help transform the beleaguered city. It echoes an initiative that helped change Baltimore in the 1970s.
The city is keen to foster homeownership, so owner-occupants get the $1 price. For investors, that number goes up to $3,000. Savvy buyers could, of course, live in the home initially and move out and rent later, thus still qualifying for the free home along with grants of $50,000 to assist with renovations, provided recipients secure preapproval for construction loans.
Should You Invest in Baltimore?
So, should you kick-start your investing journey by buying one? To answer that, you need to answer another question: Do you mind putting in a lot of work and money to fix up a home in a crime-infested neighborhood in which you will have to live?
Before responding, it’s worth noting that New York instilled a similar scheme in the 1970s and ’80s in Harlem, where it auctioned off brownstones for bargain-basement prices. Those homes are now worth millions.
However, Baltimore is not New York, and a lengthy wait may never result in millions of dollars in equity. That said, a developer could ostensibly buy multiple homes to transform entire neighborhoods for the better. For most small investors, however, if money is tight, you are unfamiliar with gut job renovations, and are not keen on living in a war zone, the logical advice would be to run in the opposite direction—quickly.
The U.S. Has a History of Selling $1 Homes.
Baltimore is just one of many cities in America selling rundown homes for $1. Newark, New Jersey, a 20-minute train ride from Wall Street, recently implemented a similar program, and HUD has an entire website dedicated to $1 homes.
A city-sanctioned sale is a safe bet that once all the criteria are met, you can buy a home for $1 and probably be eligible for loans and grants, too. However, beware of homes advertised for sale for $1 elsewhere. The magical sales price could be misleading.
A luxury New York condo was recently advertised for sale at that price and eventually auctioned for $2.5 million. Bait-and-switch tactics are common with unbelievably low-priced homes.
And $1 homes are not limited to the U.S. either. Italy has recently been in the news for selling rundown one-euro homes in picturesque villages, as have many other cities around the world.
Who Should Invest in $1 Homes?
Despite the negative aspects of investing in a $1 home, there are instances when it could be worthwhile. There is a chronic shortage of affordable housing; many urban cities are nearing bankruptcy. Thus, cities are desperate to increase their tax rolls and could help out with subsidies from state and federal governments and profit and nonprofit organizations.
To start the process, check the HUD website for $1 homes near you, and then look to see which Community Development Block Grants (CDBG) are available. However, don’t consider taking the plunge unless:
- You are extremely handy and can do much of the work yourself. If you are handy and don’t mind taking on the general contractor duties of a major renovation, hiring subs along the way, you can maximize government grants, programs, and loans to bring in the renovation without too much money out of pocket.
- You are an experienced investor with a tight-knit construction crew. If you’re an investor looking to flip or rent multiple homes when finished, the economies of scale could work in your favor. Granted, you won’t be able to pick up the properties for a dollar, but by having efficient crews go from home to home, you can minimize costs and help uplift an entire city block, raising property prices. Beware, however, of the perils of doing construction in a blighted community. Homes are being sold for a dollar for a reason. Ensure your crews are protected and secure, all entrances locked, and never leave your tools on the premises.
- You are a minority developer and can access funds designated for diversity and inclusion. Over the last four years, many cities and banks have been keen to redress gender and racial inequality in construction and lending and have earmarked programs and money for minority-led projects in historically Black neighborhoods. Of course, that doesn’t mean that everyone hired to work has to be a minority. Often, minority developers can access the money and partner with a nonminority contractor or business associate.
Final Thoughts
Seeing homes advertised for $1 anywhere in the U.S., especially in and around major cities, will attract attention. Cheap homes that require an entire gut rehab are rarely deals, especially if the land is not valuable. That’s because the money you need to spend to make them livable usually equals the amount it costs to buy an already livable home—without the headache of construction.
The only way to get ahead in the short term is to save on construction costs by doing much of the work yourself—trading your time for money—or by accessing grants or deficient interest-rate loans. So, they are generally not for short-term flips unless the aforementioned factors are in place. Instead, these are best for long-term buy-and-hold owner-occupants investing in their futures and the increasing prosperity of the neighborhood.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.