Amid the worst job market in a quarter century, Paul Clark quit his well-paying job as a general manager at Aaron’s Sales and Service to start his own real estate business.
“A lot of my friends thought I was crazy, but there’s a great opportunity here,” the 27-year-old entrepreneur said.
Staff Photo by D. Patrick Harding Georgia Nichols, left, and her daughter Sondra Conner, listen to Remax realtor Aaron Shipley talk about a home for sale during a Remax sponsored tour of foreclosed homes.
But Mr. Clark, who convinced wealthy investors to help him start his E’Z Home financing venture in February, is eager for a different way to buy the houses his company will finance.
So last Saturday, Mr. Clark climbed aboard a bus with a dozen other prospective home buyers for a tour of foreclosed properties in Hixson and Red Bank. Organized by ReMax Realtor Aaron Shipley, the “Deals on Wheels” tour gave real estate investors and potential home buyers a first-hand look at some of the opportunities — and challenges — of buying repossessed property.
With home foreclosures at record highs, Mr. Shipley said he plans to offer such tours at least once a month.
Across the nation, similar tours of foreclosed properties are being offered aboard buses, vans and even a boat in Florida as real estate buyers and sellers adapt to changing markets.
Realtor-assisted home sales in the Chattanooga area were down nearly 19 percent in the first couple of months of 2009 compared with a year ago. But Mr. Shipley insists there still are opportunities in real estate for those who work at them.
“It’s not a bad market,” Mr. Shipley tells his bus riders while traveling among foreclosed homes priced from $55,700 to $295,900. “It’s a correction market. It’s good for those who know what to do.”
The American dream may be broken for many forced to give back their homes to banks in foreclosure. But one person’s loss can be another’s gain.
Nationwide, the typical lender loses nearly $50,000 in a property foreclosure. So, many lenders — but certainly not all — are willing to cut their losses and sell the repossessed properties at a discount.
“You definitely can get a better buy on a foreclosed property,” said Cathy Sausanan, a Ringgold, Ga., home owner looking to buy a house closer to her job on Signal Mountain. “It’s great to see what is out there on the market.”
What’s “out there” isn’t always for the faint of heart, however. Most foreclosed properties require considerable repairs. Some of the vacant properties have been vandalized or damaged.
In one Hixson home on Dent Road on Saturday’s bus tour, visitors are greeted with the odor of animal feces. A mushroom grows through the kitchen floor of the abandoned house.
In another Hixson home, the foundation of the garage is crumbling in one corner, scaring off previous buyers.
Brandi Thompson, a Realtor with the Shipley team, said most home buyers stay away from homes with structural and biohazard warnings. But for those able to clean, repair and redo such houses at a reasonable cost, there are rich opportunities.
While the house with foundation problems in the garage is priced at $79,900, a similar, foreclosed house next door had new appliances, carpet and paint installed and is priced at $126,900.
Ms. Thompson said she bought a HUD-foreclosed home on Rolling Ridge Drive last year for $86,000 after offering the house to five other investors. The house was listed with 1,356 square feet, but it included a full finished basement and a two-car garage, giving the property an appraised value of $139,000.
“I was able to get the money to buy and redo the property and now have a great rental home until the market improves,” she said. “That’s knowing the market and knowing what needs to be fixed.”
The market for foreclosed property is likely to continue to grow this year, according to industry experts.
Nationwide, foreclosure notices jumped 81 percent last year to a record 2.4 million households, according to RealtyTrac, an industry group that monitors property foreclosures. Rick Sharga, a senior vice president at RealtyTrac, expects even more property foreclosures in 2009.
“I would not be surprised if we surpassed 3 million foreclosures this year,” he said this week while attending a convention on property foreclosures with more than 3,000 real estate agents in California.
With more adjustable-rate mortgages coming off their low teaser rates and unemployment continuing to rise, more homeowners are likely to walk away from homes, Mr. Sharga said. Studies show that for every six to 10 jobs that are lost, there is at least one home foreclosure, he said.
In February, the National Association of Realtors estimated that nearly 45 percent of the home sales nationwide either were foreclosed properties or “short sales” in which homeowners facing foreclosure sell a property for less than the mortgage.
Mr. Shipley said the type of person buying repossessed properties is quickly changing. In the past, most buyers of foreclosed properties were investors buying for rental or resale purposes.
But now, Mr. Shipley estimates more than two-thirds of the buyers of foreclosed properties are buying homes they want to fix up and live in.
“I always say when you buy a property, you should first be able to sell it, rent it or, if you need to, live in it,” he said.
In Chattanooga, Cindy Walker, manager of “Real Estate Owned” division of Crye-Leike Realtors, said both investors and first-time home buyers are showing more interest in property foreclosures, short sales and other bank-owned houses.
“Chattanooga was not nearly as overbuilt as many markets, and prices here never got as high as in most other cities, so there hasn’t been as big of a fall off in the market,” she said. “Most of our properties are selling pretty quickly. Prices usually aren’t coming down a whole lot until the properties have been on the market for more than 60 or 90 days.”
Home buying is being buoyed by fixed 30-year mortgage rates hovering around 5 percent and an $8,000 tax credit this year for first-time home buyers.
“Interest rates are low, and the inventory is high,” Mr. Shipley said. “If you are buying a home right now, there has been no better time in history.”
Mr. Clark agrees that there are plenty of buying opportunities for those with good credit. But for many credit-challenged consumers, getting a home loan won’t be as easy as in the past. Mortgage lenders have tightened their standards in reaction to the recent mortgage meltdown on Wall Street.
E’Z Home will provide owner financing at higher rates for those unable to get conventional mortgages, and Mr. Clark will use those payments to provide a higher rate of return to investors than traditional mortgage-backed securities.
Mr. Clark sold an Illinois financier on the concept of investing in Chattanooga because of the market’s growth potential, he said. Chattanooga was one of only 11 metro areas to show a gain in the median sales price of homes sold in the fourth quarter of 2008.
“With Volkswagen coming to town, I was able to convince investors that Chattanooga is a good market to be in,” Mr. Clark said.