Economic decay in major cities benefits no one. Decline doesn't just occur overnight; it usually happens slowly over decades. And that's the story of Monessen, Pennsylvania, a Rust Belt city 30 miles outside of Pittsburgh. City officials are trying to revitalize this town that once served as a hub for commerce and industry.
One in 10 Monessen properties sit vacant, are in bad shape, and come with thousands of dollars in back taxes attached to them. To encourage people to buy these neglected, vacant homes, the city will wipe out all the overdue property taxes for anyone who buys one.
The hope is this will be enough incentive for people to buy Monessen's stock of vacant homes. The conditions are that the new owners fix up and renovate the homes, and they must spend enough on renovations to cover more than three times the amount of the back taxes.
Is it working?
There have been some takers. So far, about 50 homes and commercial real estate properties have been bought, and about half those sales were sold to real estate investors. Incentives like these provide opportunities for many people to become first-time homebuyers, get started in real estate investing, or add to their real estate investment portfolio. After spending around $25,000, one program participant got a renovated house.
It might be short-lived
The current mayor's term ends this year, and the incoming mayor isn't a fan of the program. So, this particular real estate investing opportunity might end this year. However, other small towns have similar investment programs that they offer, some indefinitely and others from time to time.
- St. Louis, Missouri: In 2019, St. Louis offered 500 vacant homes in terrible shape for $1 each to buyers who would renovate them. The homes were all single-family homes smaller than 1,500 square feet.
- Gary, Indiana: This Indiana city has a program called the Dollar Home Program. First developed by the United States Department of Housing and Urban Development (HUD) decades ago to combat home abandonment problems, the program was relaunched in 2019, not by HUD but by the City of Gary. The program allows people to enter a lottery to win a home for $1 and then gives them six months to bring it up to building codes. The buyer must live in the home for five years, at which point they become the owner.
- Buffalo, New York: In Buffalo, there is a program that's been in place for decades. Called the Urban Homesteading Program, buyers can get a home for $1 as long as they fix code violations within 18 months and live in the home for at least three years.
About these types of programs
Usually, cities that offer homes for practically nothing do so as a last-ditch effort to save the town and the structures that are about to be razed. Sometimes, the incentives get people to bite and renovate these homes that have become dangerous eyesores.
Most of the homes need a complete renovation, requiring new roofs, plumbing, and electricity, and many also have water damage and mold. Some buyers end up spending upwards of $50,000 on what is marketed as a "free" home.
The Millionacres bottom line
Deals like the one in Monessen and the others mentioned can be tempting. But as any fix-and-flip investor knows, rehabilitating a house can be costly. Many of these deals are geared toward bringing back the community and, as such, have occupation rules that discourage flippers. If you're thinking of buying an abandoned property, make sure it's worth the investment before jumping in.