Bidding $125 for a bungalow

With foreclosure homes flooding the US property market, some properties can be bought online for as little as $1, says Brian …

With foreclosure homes flooding the US property market, some properties can be bought online for as little as $1, says Brian O'Connell.

THIS WEEK I attempted to bid on a three-bedroom bungalow in Detroit, Michigan from my home in Cork. I saw the house on the real estate website, realtor.com.

Built in 1950, the property comprises 800 sq ft over-basement, and comes with a garage and porch. It is one of an estimated half a million homes in the US in various stages of foreclosure this year. The asking price was $200 (€146). I was prepared to bid $125 (€91) so I contacted an estate agent in Carolina called Kelley Starnes. Several e-mails later I was sent a number of documents to fill out in order to make my bid official.

To cover legal and other fees associated with buying a house in the US, including title insurance, transfer taxes, property taxes and mortgage fees, buyers must allow about 5 per cent of the purchase price (depending on the US state). If I decide to go ahead with my bid on the Michigan house I will need to get a lawyer on the ground to handle the sale. In addition, a commission of 5 to 7 per cent for the agent will be payable. I will have to open a bank account in the US. If I do this the Revenue have to be informed on my tax return form in the year in which the account is opened. All in all, this property, with charges, should cost me no more than $500 (€365).

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So, where's the catch? Well, right now I can't see one. As the credit crunch affects homeowners stateside, many are simply walking away from high-interest mortgages and throwing the key in the letterbox. For anyone who lived through the property bust in the UK in the 1980s, the scenes will be all too familiar.

Banks, eager to get the properties off their books and not wanting to have to shell out for maintenance and associated costs, are in a desperate hurry to offload their toxic titles. For the brave investor, the pickings can be cheap and plentiful. For instance, realtor.com currently has more than three million homes for sale, advertised with prices ranging from as little as $1 (€0.73).

Irish property website Myhome.ie currently has more than 2,500 US properties for sale, whereas six months ago only a handful were advertised through the company.

Included is a two-bed condominium with a swimming pool two miles from the beach in Southwest Florida with an asking price of $83,897. Or a newly built three-bed in Orlando with almost 2,000 sq ft for $136,242.

One of those taking a chance is a 52-year-old father of two from Limerick, who recently sold a second home in Ireland to fund an American property buying spree. For financial reasons he does not want to be named. In the past six months, he has bought seven properties in Waynesville, North Carolina, and all for less than the cost of a modest five-bedroom home in suburban Dublin.

Waynesville was founded in 1809 by an American Revolutionary War soldier. It has a population of almost 10,000 and is located midway between the Smokey and Blue Ridge Mountains, 15 miles from Cold Mountain, which was made famous by the Charles Frazier novel. The per capita income for the town is $17,821 with 15.5 per cent of people living below the poverty line.

"I've always had an interest in the American market, but since April I've been acting on that interest and buying properties. I'm now looking at buying property number eight, and I was able to fund my purchases by selling a house I bought in Dublin in 1991 for £50,000. It sold in 2006 for €650,000."

His investments include a farmhouse with four apartments for $241,000 (€175,800); a 2.7-acre trailer park with eight trailers and a two-bedroom house for $235,000 (€171,400), plus a bar and restaurant on a main street, including all the fittings, for $104,000 (€76,000).

He says buying property in the US is relatively straightforward and the rental market is currently strong - his properties have already begun to generate income. Each trailer in his newly bought trailer park, for instance, takes in $500 (€365) per month.

"The majority of them I have already rented so it more than pays for itself. I also bought a two-bedroom house on 0.3 of an acre. The asking price was $40,000. I offered $16,000, and they accepted $26,000.

"The house turned out to be owned by Deutsche Bank, who have no business interests in that state, so that tells you how complex and out of hand the subprime situation is. All the deeds are available electronically, and the title search is exactly the same as Ireland. You also have a thing called title insurance, which guarantees the title is clean and if anything happens you can be insured against it."

The Limerick investor says his policy is a long-term play; he doesn't expect to make serious investment returns for five to 10 years. Mid-market rentals are fetching $750 to $1,000 a month (€547-€730), so he is in no rush to offload. Returning to the US next week, he now has his sights set on some more urban centres: "It's inevitable that in five to 10 years the market will turn around again. Historically these things work in cycles, usually lasting five years. In Ireland we just happened to go through two cycles without stopping."

But what about those living in the US who bought their homes at the peak of the property boom? Charlaine Berry, 32, originally from Ennis, Co Clare, has been living in Orlando, Florida for the past seven years. Three years ago, she and her husband Mikel Bascones bought their first home for $230,000 (€168,000). Today it's worth around $170,000 (€124,000).

They decided to rent out this house and get a bigger family home. They started looking in January and saw a house with four bedrooms and a swimming pool with an asking price of half a million dollars. By the time they viewed it a second time this summer the price dropped and they bought it for $369,000.

Berry says investors should beware that some foreclosure properties are left in a bad condition. "In the US, a lot depends on what schools are in your local area too," she says, "so it's important you do the paperwork beforehand."