Distressed Cities: Prime Targets for Home Builders

Is bulldozing large portions of distressed cities really the answer to saving America?

Stories of banks donating properties and tearing them down to clear out inventory and garner tax breaks have been floating around the real estate investing community for several years, but they pale in comparison to what’s happening in Detroit right now.

While the general consensus is that we are now entering the front side of a housing boom and recent stats show foreclosures dropping another 22 percent, there are distressed cities that still have their issues.

Detroit is certainly at the forefront of all our nation’s distressed cities. While it has become a hot bed with investors, much of the city has become an urban wasteland. According to a new Bloomberg report, only about 700,000 people live in an area made to house two-million. This means some entire neighborhoods only have one or two homes occupied. The vacant ones quickly devalue the good, and perhaps even worse, it creates havoc with public services. Distressed neighborhoods are a breeding ground for urban war-zones.

On the other hand, starting from scratch could really revitalize distressed cities like Detroit. Revitalization initiatives could potentially turn them into neighborhoods with desirable communities, new business and lots of tax revenues to boost the economy.

William Pulte, of PulteGroup, which is the nation’s largest home builder, claims tearing down massive chunks of the city is “the only way to truly save Detroit.” The firm has already bulldozed a 10 block radius in the southeast part of the city with plans to continue building at least 13,000 homes a year.

So what does this mean for the wider real estate investing community and what can individual investors learn from it?

  1. There is a lower cost per unit when building in bulk
  2. Working with local governments can provide big tax breaks and incentives
  3. Real good can be done by revitalizing communities
  4. Investors can have a huge impact on the economy, both locally and nationally
  5. There could be easy opportunities to cash in from selling out to builders
  6. There could be big windfalls for acquiring real estate in the path of builders