Real Estate News

How to buy a house for $600

The Wichita Eagle

Deep within a blandly normal south Wichita neighborhood of newer ranch homes sits a creepy house where Halloween appears never to have left.

It’s haunted by the ghost of financial collapse. Weeds have grown waist high, and small trees have sprung up inches from the walls. Without siding or shingles, the boards enclosing the house are badly weathered. The windows are boarded up.

The builder ran into financial difficulties halfway through construction four years ago and stopped paying the taxes. The home was left to rot.

Enter Vicki and Lee Martinez. They bought the property near 55th South and Hydraulic at the Oct. 20 Sedgwick County tax sale for $600 and plan to fix it up. The way Vicki Martinez describes it, it’s a no-brainer.

“Even if it’s $80,000, the houses around here sell for $160,000,” she said.

The county’s tax sale is generally regarded as the leftovers of the leftovers, sort of like a super-duper discount sale of everything Goodwill and the DAV couldn’t sell.

There are lots of lots, literally, and lots of houses that only the most enterprising want to take on. For the county, its fairly effective, said Chris McElgunn, the attorney who handles the sales for the county. About 90 percent of the parcels are sold. He estimated that about a third to half of the lots have houses, in some shape, on them.

There are either two or three sales a year, depending on the amount of delinquent property. The next one will be next summer.

Prices are very low, but even then the property may not be worth it. Martinez said they bought two other lots in the subdivision for $10 each but will owe about $1,000 per lot per year in specials.

But the number of people coming to tax sales looking for hidden gems seems to keep growing – and sometimes they bid on things without a clear idea of what they’re getting, McElgunn said.

He said the buyers are often disappointed when they study what they’ve bought.

The obviously good stuff is usually skimmed off by professional investors who identify homes and homeowners in financial trouble months earlier and approach them before the property goes through a tax sale.

What typically is left to be sold at a tax sale is the stuff that most people say takes too much money and time to fulfill its potential. That includes building lots without any utilities or street access or tumble-down houses in poor neighborhoods.

“There’s a reason it’s in foreclosure, and it’s not because it’s valuable,” McElgunn said.

The appeal of a bargain

But one man’s trash is another man’s treasure.

What attracts buyers, besides the low prices, is that going through tax sales wipes out back taxes, specials and unpaid mortgages. The house or lot is free and clear.

Brant Dumford bought a 3,000-square-foot lot this year in a neighborhood near 13th and West streets for $108. He said he would offer the lot to neighbors for $216.

“I look at lots as potential for either a tax write-off or a quick profit,” he said. “If you had a house, wouldn’t you like the lot next to it? You could turn it into a community vegetable garden.”

Dumford is an old hand at finding value in what others have passed by. He has bought a number of houses for renovation and resale, including four from county tax sales. He loves improving a neighborhood by renovating its worst property.

But, he said, the Oct. 20 tax sale made him wonder. There were a lot of people there, and they were bidding too much.

“Everything they paid was over what we were willing to pay,” he said. “I’d say they paid a premium.”

Process hurts cities

As soon as they’re bought, these properties go back on the tax rolls. Specials and taxes start accumulating again; the grass keeps growing – but the new owners don’t always follow through.

Park City has spent hundreds of thousands of dollars purchasing scores of developed and undeveloped lots out of tax sales. The reason, said city administrator Jack Whitson, is that allowing the general public to buy them individually and wait for them to develop will just prolong the problem.

“Right now they go to a tax sale and buy a lot for $10 or $100, and they sit on them and hope to flip them,” Whitson said. “If they don’t pay the specials, even though they signed something that said they would, and the county doesn’t force that issue, we’re still out the money.”

Park City has lost $700,000 in unpaid specials over the last four years, and that number grows at $200,000 to $300,000 per year, he said.

Park City is marketing the lots, both with and without utilities and streets, itself. So far, he said, the city has sold about 10 lots for housing this year.

Whitson said some developers exploit the state law that allows the owner of a property to not pay taxes for three years before a property can be sold for back taxes.

“It’s well known by developers that this is kind of free financing for them,” he said. “If they’re having a rough time, they just don’t pay their specials until they get it sold. It’s good for developers, not good for the city.”

Other cities have taken a similar approach. Clearwater bought 37 lots in the Chisholm Ridge subdivision at the latest tax sale.

“Somebody could buy one and sit on it, which is what happened with a small group of lots previously,” said Clearwater city administrator Kent Brown. “They got new owners and still nothing happened. They’re so cheap that there’s not much incentive.”

Proceed with caution

For those who can’t resist the chance to find that hidden gem, some advice from those who have been there: Take your time, read the property descriptions carefully, figure out what you want in advance, take the time to visit the sites, estimate how much time and money is needed to hold or repair the property, and then stay disciplined in bidding.

“You’ve got to take your heart out of it,” Vicki Martinez said. “Or, before you know it, you’re paying $10,000 more than you should.”

Christina Unrein bought a house that had extensive fire damage and isn’t habitable.

“I did it sort of on a whim,” she said. “I thought I might fix it up and make some money, but I also like the idea of improving a neighborhood.”

She said that when she wasn’t working and had plenty of time. Now she’s working and doesn’t have much time.

“As time is passing, I’m less and less anxious to do something,” she said. Now, she might try to sell it.

Her advice: Do your due diligence and know your own self.

“People who are risk averse shouldn’t do this,” she said. “There are a lot of unknowns and you don’t always know what you’re buying. Having it might freak them out. But if somebody wants something new in life or something to take up their time, it’s could be a good thing.”

Reach Dan Voorhis at 316-268-6577 or Follow him on Twitter: @danvoorhis.

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