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The Cheapest Real Estate in the World

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, April 29, 2009

"All of a sudden, it became a monster..."

I was on the phone with my friend Andrew. Andrew is 25 years old. He's been trying to get a business off the ground. Recently, his phones started ringing... and they're still ringing nonstop...

"A guy from Vegas called. He bought 35 houses with cash. Then a guy from Toronto called. He bought eight houses and a 186-unit apartment community. We just had another guy in from Toronto looking to buy 50 rental properties."

Someone else was speaking on a phone a few yards away. More phones rang in the background.

"We're getting calls from all over the world," said Andrew. "Tons of Americans are calling in. It's both. We've launched a website too... and we're already getting a lot of hits. We now have 22 agents working for us, full time."

My friend's city has the cheapest real estate in the world. But in the last six months, prices capitulated. A price capitulation is what happens in the final throes of a bear market. It's the final death spasm that sends prices to ridiculously low levels for a moment before people regain their senses.

"They call up and they want to buy houses for $500," Andrew says.

Andrew showed me a house his firm bought for $750. They bought this house from a bank a couple months ago. It's almost in rental condition. This house sold for $110,000 in 2005.


Then he showed me a house they paid $20,000 for two months ago. It's a four-bedroom, three-bath, 1,900-square-foot house with a full basement. The bank mortgaged this house for $188,000 in 2006. It's in a fantastic neighborhood of well-maintained lawns, where people take pride in where they live.


Andrew is accumulating as much of this property as he can. Apartment buildings in wealthy neighborhoods are his favorite investments. His city is in a depression, and people don't want to own houses. So there's strong demand from people who want to rent. He says he can make returns of 15% to 20% a year in these properties...

Here's the thing: There's always a price that'll "clear" a market. When prices reach a certain level, buyers enter. This is one of the most important fundamental rules of speculation... and it never fails.

Andrew lives in Detroit. For years, there's been no life in Detroit's real estate market. This year, without explanation or fanfare, prices in Detroit property reached this level. Now sentiment has turned around. The phones in Andrew's office have started ringing.

If the market for Detroit housing has found a bottom, maybe the property market in your hometown is close to making a bottom, too...

Good investing,

Tom 

P.S. Andrew Kuhn is a DailyWealth reader. I met him two years ago after he contacted us and offered to show us around Detroit. DailyWealth readers can contact Andrew at andrewdkuhn@gmail.com or check out his websitewww.helpbuilddetroit.com




Market Notes


MORE ON THE CRAZIEST TRADE IN THE MARKET

Yesterday, we looked at the "ridiculous" rally in restaurant stocks.

Despite the recession, companies like Panera Bread, Chipotle, and Cheesecake Factory are all near 52-week highs. The market is suggesting the Fed's wild efforts to inject money and credit into the market are taking effect... which means bigger profits ahead for this beaten-down sector.

But what about the coffee stock everyone loved to hate last year... the king of the $5 cup of coffee? What about Starbucks?

As today's chart shows, even overpriced coffee – as measured by Starbucks (SBUX) stock – is enjoying a rally right now. Investors fled the stock last year on recession concerns... and SBUX fell a huge 60% from its peak. But now that the market believes things are getting "less bad," the stock is soaring. Shares are at a six-month high. As unlikely as it sounds, the "consumer spending" rally is on!


In The Daily Crux



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