How to Buy a House That Is Not Considered Livable

Would you buy that for $1?
i J.D. Pooley/Getty Images News/Getty Images

The July 2013 bankruptcy declaration by the city of Detroit highlighted that community's blight problem -- including houses, structurally sound but stripped of fixtures, dotting crime-ridden neighborhoods. Some of these homes are on the market for just $1, although the property would require significant rehabilitation before it's ready for move-in. For houses in Detroit, as well as other distressed communities, fixer-upper real estate can be had on the cheap. And the best part? There's no real difference in the purchase process between habitable and nonhabitable dwellings.

Step 1

Look for the hidden strings. Some distressed properties may have various tax or utility liens that must be paid before the title can be transferred or utility service (such as municipal water and sewer) can be restored.

Step 2

Perform a detailed inspection to determine whether the house is a candidate for condemnation. There's a world of difference between a house that looks like it survived a war zone and just needs some attention, and a house that looks "not so bad" but has weak bones. A house with an unsound foundation or damaged framing won't pass inspection no matter how much cash you drop on cosmetic repair. Your only choice may be to tear down the dwelling and erect a new one.

Step 3

Evaluate the neighborhood. A bank-owned repossession, for sale on the cheap because the prior owner trashed it before being evicted, may be a steal if it's in a decent neighborhood. But rehabbing a house in the middle of a derelict neighborhood won't improve your resale value and may make you more prone to being the victim of a property crime.

Step 4

Check your financing. A lender won't offer a mortgage on a property that cannot be inhabited, so you'd have to seek a construction loan instead. The terms and rates for a construction loan may differ significantly from a mortgage depending on your creditworthiness and required financing.

Step 5

Assess your resources. Do you have the time, cash and patience to rebuild a derelict property? Don't let the dream of owning a cheap fixer-upper cloud your judgment about the scale of the work you'll have to undertake to turn a derelict house into a home.

Step 6

Engage in the real-estate transaction. From a paperwork perspective, there's no difference in the title-transfer process between buying a habitable or a nonhabitable dwelling. The process unfolds based on the nature of the sale -- i.e., a bank-owned property vs. an owner-occupied property.

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