Bargain hunters buy up houses

Slumping market has opened door for real estate investors

September 09, 2007|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

Foreclosures are rising, home prices in some neighborhoods are falling and the lending industry is in turmoil.

What a great time, some think, to be a real estate investor.

This down market is a far cry from the housing boom of a couple of years ago, when rapid sales and price jumps drew hundreds of rehabbers, "flippers" and wannabes to Baltimore in a modern-day gold rush. Some, caught by the sharp change since then and saddled with loans they can't cover, are trying to get out as fast as they can.

But others are jumping in, seeing in the market reversal an opportunity to buy low now and sell high later.

"We are getting new people all the time," said Alan Chantker, president of the Mid- Atlantic Real Estate Investors Association, based in Owings Mills. "You can make money in any market if you know what you're doing. ... I hate to say this, but I'm sure there were people in the Great Depression in the '30s who made their fortunes buying properties for pennies on the dollar."

The investors association has just over 300 members, up slightly from the end of the housing boom in 2005 and about 100 people more than in 2004. Investors United School of Real Estate in Baltimore, which offers a yearlong program, said it's getting a steady stream of 15 to 25 new students a month. ASPIRE America, an investing "academy" in the city, said its enrollment is about 300 -- up from 60 last year.

Some foreclosure-prevention advocates worry that these new investors will end up in over their heads, speculating dangerously in a tricky market that could deteriorate further.

City home sales have dropped considerably since the market peak, when about 70 percent of homes bought in Baltimore were snapped up by people who didn't plan to occupy them. City permits for significant rehab projects have dropped, too, down 15 percent in the last fiscal year for work valued at more than $5,000.

But that doesn't mean there's a shortage of investors. It's just that those now in the market aren't grabbing any old place, as some did when double-digit price increases made everything look like a bargain. And they think trends are favorable, even the meltdown in the mortgage market, because many investors don't use traditional financing but can find sellers squeezed by payment spikes on adjustable rate mortgages.

In investor groups and seminars, there's a lot more talk about buying and holding -- a sea change for Baltimore, which saw several years of buy-and-sell-quick. Investors are also trying to capitalize on the growing numbers of loan defaults and foreclosures.

Teresa Boone-Ofosu, who stopped working as an accountant last year to focus on investing in Baltimore, is on the hunt for those most motivated of motivated sellers: people in danger of losing their homes because they can't pay their mortgages. She's trying to persuade lenders to forgive part of the debt so she can buy for less than the owners owe, which in investor parlance is called a short sale.

Boone-Ofosu, a Bowie resident, said she mails an average of 250 to 300 letters and postcards a week to prospective sellers -- not just homeowners in trouble but also landlords with problem tenants, people filing for divorce, owners with vacant properties.

She has gotten close to buying a few homes, but nothing has gone through. She's not desperate, as one lender discovered after it told her that she would have to pay to postpone a foreclosure if she wanted the right to continue negotiating over the property. (She said no thanks.)

"I'm just waiting for the right one," said Boone-Ofosu, whose husband, a mechanic, is also interested in investing. "In every market, you can find an opportunity."

Robert Bostick, chief executive of ASPIRE America, is also working on short sales. In one deal he struck this summer and expects to go to settlement on this month, he said, the lender agreed to waive $28,000 of the balance on a $65,000 mortgage. Last week alone, lenders holding mortgages on several other properties he wants came back with counteroffers, he said.

"They're bending over backwards at this point in time to get deals done," said Bostick, a rehabber with a business administration master's from University of Pennsylvania's Wharton School.

Local institutions do consider short sales, though the requests they're seeing are largely coming from real estate agents, according to the Maryland Bankers Association. But a national industry observer said Baltimore investors shouldn't hold their breath waiting for great deals.

Most new mortgages are held not by banks but by Wall Street investors, which means the company servicing the loan can't make independent decisions about short sales, said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter in Bethesda. Also, he said, local foreclosure numbers haven't risen to the crisis point that would force lenders to cut their losses.

"If you're in really distressed areas like Cleveland, Detroit, I think you'd find lenders more willing to talk," Cecala said.

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