Tax auctions better bet than “dollar home” programs

Some communities around the country have highly-touted “dollar home” programs, designed to get older, mostly abandoned homes back on the tax rolls. In theory, it’s a great idea, but in practice, it often doesn’t work very well.

Here’s an example. Here in South Bend, Indiana, the city, under the guidance of our Mayor, implemented a dollar homes program a couple years ago with much fanfare. Many other cities with blighted areas have tried similar programs. For the most part, it was nothing more than political grandstanding, and it was designed from the very beginning to fail. In fact, very few of these programs have ever worked. Here is the problem. The South Bend dollar homes program set aside homes in blighted areas, in neighborhoods where homes are sitting on the market for over a year and selling for maybe $30,000 to $50,000. That in itself is not bad, these areas are where there needs to be programs like this. But the requirements were very stiff. The buyer was obligated to put $70,000 in repairs into the dollar home within five years, and was obligated to prove to the city that they were creditworthy enough to obtain the financing to do so. This requirement did two things: First, it eliminated virtually everybody that wanted a dollar home right off the bat, because of the stiff credit requirement. Second, it made it financially impractical, even if you could get the credit. Why put $70,000 into renewing an old home in a broken neighborhood, when for the same money, you could get a home already in good condition for the same price elsewhere? And what’s more, there is no way that a home in the targeted neighborhood would ever be able to be re-sold for enough money to recoup the money spent.  It’s interesting to note that although several people applied for the Dollar homes program here, not a single person has ever qualified to get one.

Although it’s a longer-term play, obtaining a tax lien certificate at the annual auction is a much better strategy. You will of course, probably have to put money into repairs, but nowhere near the impractical $70,000 figure cited in the silly dollar homes program. There is no timeline requirement for putting in any certain amount of money into the home once you have acquired title, all you have to worry about is complying with the local code enforcement department. You do of course, have to be willing to put in some time. You have to wait for the auction in October, then wait another year to sit out the redemption period. Then it will take another month or two to complete the paperwork. But, in the end, the house is yours, with no extra requirements.

You can find out the details of how to participate in tax auctions, and how to obtain tax lien certificates, in my book, “Learning to play the real estate tax auction game.”