Summary:

Ken McElroy shares the story of turning down a house in Detroit that was selling for just $1. While the price seemed too good to pass up, the deal was riddled with problems—from crumbling neighborhoods and crime to hidden renovation costs and restrictive rules. The experience became a powerful lesson: in real estate, price alone doesn’t make a deal—fundamentals do. Ken emphasizes that smart investing is about cash flow, location, and long-term value—not flashy discounts.

Key Highlights:

• A $1 house isn’t free: Buying cheap often means buying a liability. The $1 homes in Detroit required costly renovations, personal residency, and came with tight deadlines.

• Neighborhood matters more than the property: Even a renovated home won’t perform if it sits in an area plagued by crime, vacancies, and economic decline.

• You can’t fix a bad neighborhood: While you can improve a property, you can’t single-handedly change a community. Tenants, managers, and lenders all avoid distressed areas.

• Cities often offload risk onto investors: The goal of the $1 homes was to restore the tax base—not provide investors with great opportunities.

• True real estate investing is about fundamentals: Look for job growth, population migration, safety, and demand—not just low prices.

• The best deals are sometimes the ones you don’t do: Saying “no” to bad fundamentals, no matter how cheap the price, is a sign of real discipline.

• Detroit vs. opportunity markets: While Detroit homes have appreciated over time, the ROI wasn’t worthwhile in the early years—Ken made far more in stronger markets.

• A wealth transfer is happening now: Just like after 2008, investors who focus on solid markets and long-term fundamentals will thrive in today’s shifting economy.

• Final takeaway: Don’t chase cheap. Chase location, demand, income, and exit strategy—because a low price without fundamentals is just a trap in disguise.

TRANSCRIPT:

In 2012, I had a chance to buy a home in Detroit for $1. Yes, that’s $1. And I passed. It all started with a YouTube video I watched. And of course, it became a national story. You can find this on the internet anywhere. I told Robert Kiosaki, “Let’s go to Detroit and check this out. Might as well. For no other reason, it’d be a great experience just to go check out real estate in another market.”

So, we flew to Detroit and we realized that there wasn’t just one house for a dollar. There were hundreds if not thousands of these houses that were for sale for $1. So why would anybody in their right mind turn that down? Well, I’ll tell you. Because in real estate, price is not the deal. And this is what a lot of new people get caught up in.

When you buy real estate, you buy for cash flow and you buy for location. And there’s a lot of things that are involved in that recipe. First, let’s talk about what really happened in Detroit and why sometimes, even when it might appear that the very best deals might be for $1, why it might be just better for you to pass.

So, some of the best deals that you could make are no deal at all. So, there’s lots of reasons why the city of Detroit went into decline, but primarily because the auto industry got exported to other countries and other places. So in the height, Detroit was the fifth largest city in the country and it lost well over a million people as a result of some of that manufacturing leaving the area.

In fact, the city itself filed for bankruptcy in 2013. But before that, people have been leaving in droves because what happens is you have to have a solid base of employment in an area that people want to go or of course in retirement has to be a desirable place for everyone to live. So when the money disappears, real estate becomes deteriorated.

There’s less of a tax base. There’s less money to fund things like fire and police and crime starts to step up. And all of that stuff was certainly in place during our visit in 2012. So when we went, we quickly realized that there were no jobs. The neighborhoods were in big trouble. The houses to the right, the houses to the left, they were in also very, very bad condition.

What we found is the Detroit Land Bank Authority was actually in charge of many of these homes and they had certain rules around them, which is fine, but here were the rules. Number one, you had to live in the property for 3 years. And there’s no way, not only would I not move there, but no tenants are going to move there either based on what we found.

It was basically a war zone. Two, you had to bring it up to code on your dime. And of course, that could be 20, 30, 40, even $50,000. So, you buy it for a dollar, you’re really stepping into a liability. And the last thing, as you guys all know, we don’t want to catch a falling knife here because what they’re really doing is giving the house away for free so that you fix it up.

And then they can start getting taxes again. This is all about income for the city. And three, you had to do all of this inside of 6 months or you risk losing it all. So, if you can just imagine, entire blocks were empty and there was crime. So, people were squatting and living in these things. So, can you imagine trying to fix up something, have it rented, and then having to battle the neighborhood? As I always say, you can fix a house, but you can’t fix a neighborhood.

And this is exactly what was going on. Neighborhood after neighborhood were in horrible condition, and the last thing you want to do is try to buy an investment inside of that. Years ago, one of the Phoenix mayors said, “We’re going to designate the 10 worst landlords in the city.” And they did. They actually posted it.

They said, “These are the worst 10 properties in the city.” So, I went to the mayor’s office and I said, “I’ll buy all of them” because I said, “I’ll just clean this up and it would be a good political move, one for the city, but also I knew how to clean up properties.” And I knew I was going to get them at a really good price.

But then I went to him and I came back to him later and I said, “You know, you can buy the property and fix it up and spend a lot of money, but you can’t change the neighborhood.” I would have been fixing and repairing properties, but there was crime and drug use and all that stuff in the blocks around me. So, I would have never been able to attract tenants.

There would have been good money after bad if I would have moved forward with that. So, I backed away from the whole project because what you really need is for the whole neighborhood to change. And this is exactly what happened in Detroit. Anybody in real estate knows that a cheap house in real estate is rarely a good deal.

So, in this example, I could have bought a house for $1, but you’re inheriting another $40,000 of additional work in a neighborhood where there’s no comps, no jobs, and no tenants. And all to benefit the city of Detroit through property taxes, which is exactly what they wanted. And if you could get it rented, who’s your manager? Who’s your lender? And what really is your exit? Are you going to sell it for more than $40,001? The answer is no.

Not when the comp next to you is for sale for a dollar. Because you didn’t just buy an asset, you bought an obligation. And so, for those of you who are handy, there are ways to actually shortcut some of the work. Number one, if you have construction skills and you can do the work yourself, you can certainly squeeze that $40,000 investment down a lot.

Two, if you’re local and you know the neighborhoods, perhaps that neighborhood was transitioning and you could be ahead of the curve. Three, you don’t need to finance anything, so you don’t need a lender to pay $1. And four, you could write it out for the long term, but the question is, will that money that you’re investing make money? And what will your ROI be or your return on investment for that long period of time and how long will it take for the market to actually recover? Now, fast forward 10 years later, some of those $1 homes are worth today somewhere between $70,000 and $100,000. The question is, you would have not been in the money until, let’s say, year five or six. And now, of course, you are, which is good. You have to look at the return in those first few years, which is probably not very good. So, here’s the lesson. The price does not make the deal.

The numbers do, the fundamentals do, the location does, the population growth, the migration of people, the jobs, the amount of jobs moving to an area. Every area has jobs moving in and people moving in or jobs moving out and people moving out. So, you have to decide, is your market contracting or is your market expanding? What you got to be careful of is buying into a market that’s contracting or that could mean that prices are going to continue to go down and rents will continue to go down.

This is not why you invest in real estate. What you want to invest in is a market that’s expanding for all kinds of reasons. So, there’s actually three reasons right now why you should be investing in submarkets versus the big city that most of you are probably completely overlooking. If you want to know what those are, you can download the PDF here that we made for you.

I always say don’t chase cheap, chase fundamentals. Is there population growth? Are there jobs? What’s the crime rate? Is it safe? Is there a demand for rentals? Can I control the expenses? And most importantly, is there a clear path to a refinance or an exit? If you can’t answer all of these things, then you must pass.

In Detroit, the answer was no across the board on every single one of those. Even though it was a $1 house, it was a horrible deal. So, the most amount of money that I ever made was during this time frame, but Detroit was not the market that I did it in. There was a huge wealth transfer from 2008 to 2012. Now, a similar wealth transfer is happening now.

So, if you want to see how I’m taking advantage of this new wealth transfer just like we did in 2008, watch this next.