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In Detroit, you can snap up a home for just a few thousand dollars. But just because a property is cheap doesn't make it a good investment. NPR's Jason Margolis reports on a University of Michigan professor who is teaching Detroit residents how to become shrewd real estate investors.
JASON MARGOLIS, BYLINE: Peter Allen has been teaching a real estate investing course to students in Ann Arbor for more than three decades. This summer, he's doing it 45 miles east, Saturdays in Midtown Detroit.
PETER ALLEN: I crammed this into four weeks for you all, and I was just a little sleepless last night.
MARGOLIS: That's because he's throwing a lot of new terms and principles at his class pretty quickly. His 18 students are mostly middle-aged African-American community leaders. Allen requires them to target a home in Detroit, then work through the numbers. Lanita Carter stands in front of the classroom, showing repair projections for a 900-square-foot house.
LANITA CARTER: It needs quite a bit of repairs. It needs new floors. It needs - the plumbing needs to be fixed, electricity.
MARGOLIS: Her estimate - $21,000 in repairs. She actually bought it last fall for $3,900. Allen is helping her evaluate if it'd be worth taking out a mortgage for repair costs and eventually renting it out.
ALLEN: So you've got a mortgage payment of $360. You've got a tax bill of maybe $50 a month.
MARGOLIS: He adds up a few more numbers.
ALLEN: So you've got a rent of $850, and you've got payments that are no more than $600. So you got a $200 dividend left in your checking account every month.
MARGOLIS: Allen estimates that he's taught 3500 students over 34 years in Ann Arbor. He's now in Detroit because he says he wants locals to revitalize their own neighborhoods.
ALLEN: This is the best way - individual, grass-roots, entrepreneurial, house-by-house, skin-in-the-game approach to neighbor revitalization than any government program or city-directed program could achieve.
MARGOLIS: Allen is volunteering his time.
ALLEN: I tell the students the only compensation for me is that when they're finished fixing up a house, they invite me over for dinner.
MARGOLIS: Allen's students might be more cautious than the average homebuyer. After all, they are taking a class first. Consider Dana Hart, a woman in her early 40s. We walked around Detroit's North End, where she rents.
DANA HART: My father raised me, and he said, Dana, you will never own a home. It can always be taken from you by the bank. It can be taken from you by the city. It's not yours.
MARGOLIS: She's considering going against her dad's advice because she sees property values in Detroit coming back.
HART: If you don't own property, you have a likelihood of being pushed out, and I don't want to be pushed out of this neighborhood.
MARGOLIS: She has her eye on a place with boarded-up windows, graffiti and overgrown weeds. She doesn't think eyesore.
HART: I think brick. I think look at the steps and the landings that you can put flowers on. I look at the balcony.
MARGOLIS: And now she looks at property taxes and interest rates and the first three rules of real estate, which everyone knows have to do with location.
HART: I know how to do, you know, walkability scores and such.
MARGOLIS: There are some things that are hard to predict in Detroit, though. I went Lanita Carter's new home, the woman who spoke in class. It's a charming bungalow from the outside.
CARTER: It was used as a doghouse, so that's why you don't want to go in right now.
MARGOLIS: A dog house meaning there were literally dogs?
CARTER: There were literally seven pit bulls behind inside of this home.
MARGOLIS: You can still detect the faint odor of urine wafting out from inside. The dogs were protecting three squatters who were living there illegally. It took a long time for Carter to get them out. Back in the classroom, Peter Allen sees this as a teachable moment.
ALLEN: As you look back on that process, could you have improved upon it? Do you have any advice for the audience?
CARTER: I would've done it faster because I bought the house in October, and they just got evicted last month.
MARGOLIS: The squatters did a lot of damage in that time. She eventually paid a bailiff $2000 to evict them. Allen asks if it might have been better to offer them a thousand dollars to get out. That might seem like a form of extortion, but ultimately, Allen says, it's really just about being a wise investor. Jason Margolis, NPR News, Detroit.
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