Housing woes lure back bold buyers

From California to Florida, investors snap up distressed properties, hoping to profit.

from the May 16, 2008 edition

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However, the prospect of buying distressed property is still very tempting for some. McCabe recently spoke at a conference in Miami on distressed property. The organizers expected 250 people who paid $1,500 each. "Instead, they had over 700 people, 95 percent of them buyers looking for acquisitions or opportunities to network," he says.

Mr. Dexter says price reductions in Orange County, Calif., have now become very tempting. "There are listings in the low- to mid-$300,000 range for houses that had been $650,000, and the discounts are getting better and better," he says. But "Are we at the bottom? Not yet, there's still a ways to go."

Not all is coming up roses for audacious investors.

Destiny Ventures of Tulsa, Okla., purchased 115 homes in Cleveland, many of them in dilapidated condition. Steven Nodine, president of Destiny, says he usually resells them to investors, such as Econohomes of Austin, Texas, within a few weeks.

"Econohomes and others like them are reselling them for $500 down, $300 a month," says Cleveland City Councilman Tony Brancatelli.

Mr. Nodine says he buys as many as 2,000 homes a year and then resells them to investors. "I make a marginal profit," he says.

However, in the case of Cleveland, he says he will probably lose "a ton of money" since he is faced with some large fines for housing-code violations. "I am not a slumlord, or owner financier," he says. "They are running the investors out of town."

Jeff Ball, the CEO of Econohomes, sees his company filling a void: providing homes and financing for "deep subprime" borrowers. He says his average buyer has a verifiable income of $35,000 a year and average credit score of 570 (out of 850).

Mr. Ball says his company charges them a fixed interest rate of 10 to 12 percent for a 14-year loan. That's high, he concedes, but points out that the nonprofits that specialize in helping low-income people with housing are addressing only a sliver of the population in need.

"We spend a lot of time to make sure they can afford the home and the payment doesn't change," he explains. "We are trying to do this the right way, but we know there are a lot of unethical people out there."

However, Mr. Brancatelli worries that by allowing outside investors to resell marginal homes, the city will get saddled with yet another round of unsophisticated residents losing money.

"This is the next tsunami of distress – these waves of investors coming in," he says.

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