OpEd: The city needs to help Detroiters finance home restorations

Max Nussenbaum is a Detroit landlord and the co-founder and CEO of Castle. Castle is rationalizing the rental process, starting with seamless, automatic rent collection. You can reach Max at max@entercastle.com.


The city needs to help Detroiters finance home restorations

These days, Detroit has renovation fever.

The 2014 Wayne County Tax Auction is set to surpass 2013's record-setting $52 million in sales. The city's Neighbors Wanted program has already sold over 100 homes, with the overwhelming demand for one especially impressive listing actually crashing the site in June. It seems that everywhere you look, Detroiters old and new alike are snatching up houses, intent on restoring them to their former glory.

There's just one problem. Restoring a house takes more than grit and dedication: it also takes money. And in Detroit, money to finance a home restoration can be hard to come by.

Take my own story as an example. In last year's tax auction, my co-founders and I bought our house, 760 Virginia Park St., for $8,200. It was a great deal, and a great house, but it needed a lot of work—to start, new electrical, plumbing, and HVAC, and a new roof. Even with the four of us doing a lot of the work ourselves, the total repair cost for the 3,500-square-foot house came in at around $170,000.

Since the property was assessed at such a low value, a traditional home equity loan—where we'd borrow directly against the value of the house—was out of the question. A few banks in the area offer 203K loans, federally-backed loans designed specifically for home restorations, but after a months-long application process we were denied for a loan at two different banks, both times for vague, unaddressable reasons. (Even if we had qualified for a loan, it's unlikely that the loan would've covered the full amount needed to restore the property.)

We proceeded with our restoration in fits and starts, borrowing from friends and family and investing what little savings we had. Eventually, we formed an LLC to own and manage the house, and found a private investor for the company. By renting out the house's extra rooms, we were able to create cash flow that made the property an attractive investment.

The entire fundraising process took us over six months. And we're a group that had every advantage in the book: a wide network of supportive friends and mentors, previous experience structuring and pitching businesses, and existing connections to potential investors. If coming up with the money to fix our house took us half a year, I can't imagine how hard it must be for someone who isn't starting from the same privileged position we started from.

The Neighbors Wanted program, for example, requires that buyers get their certificate of occupancy within six months, and the "Get Financing" link on the front page offers only a limited grant of up to $25,000—nowhere near enough to bring most vacant homes up to livable condition. If we had bought our house from this program, it would have been repossessed while we were partway through renovations, and our neighborhood would now have one more abandoned house.

It's not as though this is a brand new problem: other cities have found workable solutions in the past. In the eighties, for example, Boston enacted a homesteading program that enabled low-income residents to pay for homes with sweat equity. Why not enact a similar program in Detroit? Alternatively, the city could just directly provide home restoration loans—or, if it can't scrape together the money, work with local banks and nonprofits to do so. After all, most homeowners who run into financing problems like this aren't looking for free money; they just need a loan. If the city can afford to sell Mike Ilitch the entire arena district for just $1, it can surely find some room in the budget for a program that would directly help Detroit homeowners.

Even smaller fixes would go a long way: the city could help homebuyers navigate the complicated 203K application process, or it could simply extend the Neighbors Wanted restoration timeline to a full year.

Encouraging Detroiters to buy vacant homes without helping them finance the restorations is setting them up for failure. If the city wants its residents to fix up and move into abandoned properties, it (and its partner institutions) need to do a better job helping them out.