The handwritten sign flaps at the
foot of the Mathews Bridge, letting drivers know that
Mitch Katsacos "will buy your house today."
Not everyone's house, of course:
Of the 60 or so responses his signs might generate in a week, two or three
callers might offer the right combination of circumstances and property for him
to make an offer.
But that's enough to make it
worthwhile. "It's all about finding out what fits," Katsacos said.
Signs like Katsacos' might not in
themselves seem unusual: Three years ago, "cash for your house" signs
abounded, stuck into every grassy median and stapled to every light pole.
What's unusual is that signs like
that - that investors like Katsacos - still exist. For some entrepreneurs,
though, real estate investing continues to be a viable business, albeit one
that offers greater challenges and requires a new approach to the process.
The housing market peaked in 2005
and began to soften, slowing in 2006 and crashing down in 2007. Prices of
homes, both locally and nationally, have dropped significantly, as has the
number of homes being sold. Exacerbating the situation is a record number of
foreclosures, which has created ripple effects throughout the rest of the
economy.
An
altered landscape
The real estate investment
industry is but a shadow of what it was three or four years ago, when seminars
and gurus abounded and everybody and their brother-in-law claimed to be getting
rich in real estate.
Most of the people who posted
those signs are gone now, gone along with their signs: bank accounts emptied by
having to pay off homes that dropped in value, credit ratings ruined by
foreclosures and bankruptcies.
Although scams abound, most of
those left in the market aren't the flippers of the boom years, the type who
often used 100 percent mortgages to buy rapidly appreciating homes that they would
sell within weeks, making thousands in the process.
Successful investing now requires
patience, deep pockets and more work, according to a range of experts who watch
the industry, as well as people still involved in real estate.
"I'd much rather be out
there trying to get the deals that are there now than a year ago," said
Sid Rosenberg, a real estate professor at the University of North
Florida. "For people with patient money, this is a great
opportunity."
Boom
years go bye-bye
For real estate investors in
general, making money during the boom could be easy. With house prices
continually rising, an investor in the right area could see the value of a
piece of property jump by thousands during the couple of weeks a renovation
took or in the months between placing a deposit on a new home and having the
structure completed.
The goal then was quick cash for
little work, with much of the profit generated by the seemingly inexorable
growth in property values.
One industry veteran remembers
having lunch with an investor looking to sell a house in Fort Lauderdale who was hoping that a scheduled
closing would be called off, allowing the house to continue to appreciate.
"That's not the way it's
supposed to work," said John
Hayes, chief executive officer of HomeVestors, a company focused on home
"recycling" - franchisees of the company buy houses in need of
repair, fix them up and either sell or rent them.
During the heady boom years, few
things worked the way they were supposed to, it appears in retrospect.
Shady investors abounded, lying
on mortgage applications to get larger payouts, taking on crushing levels of
debt and speculating like crazy.
Even some legal strategies could
get investors in trouble. Buyers who paid less for a property than its
appraised value could borrow based on the full price, pulling out the equity
value, usually to invest that money in other properties.
"The guys who really got
hurt," said Edward Malone, a small investor who survived the crash,
"were the ones who pulled it out to buy cars and clothes."
Most of those people lost their
shirt - and perhaps the cars as well - when the bottom fell out of the market.
Those who survived had a stronger
cash flow, a better business model and probably a bit of luck.
Timing
can be crucial
Malone, a Navy officer who has
been in Jacksonville for six years, fell into the industry
when he started buying and selling properties in 2005. After making his first
sale, he bought two more houses, one to live in and one to rehab, ending up
renting the second one.
He was burned once, he said, when
he had to drop the asking price of a house that had been sitting for too long -
a property he just now has a buyer about to close on - but managed to keep the
side business ticking along, even during a deployment to Iraq.
Luck played a bit of a role when
the crash came, with Malone having sold or rented out his properties before
prices started dropping.
He now has five houses in his
portfolio, with two on the market, although he's considering trying to rent
them out if they don't sell soon.
The key to continued success,
Malone said, is a good credit score and healthy cash flow.
"It's huge," he said.
"For anyone looking at the real estate market, you either have firm credit
or money in the bank."
Focusing
on fixer-uppers
Malone helps keep his cash flow
healthy by doing much of the remodeling work with business partner David
McNeil, enabling them to keep the costs low.
"You've got to make it look
good," McNeil said. "I make it look like somewhere I'd want to
live."
High-quality rehabs are vital in
this real estate economy, agreed Mark Coon, who started buying and selling
homes as the housing bubble inflated.
"You have to adjust for a
changing market," he said.
Coon has always focused on
fixer-uppers: He began buying often-dilapidated proprieties about six years
ago, when he moved to Jacksonville after signing up for a franchise with
HomeVestors, the company with the ubiquitous "We Buy Ugly Houses"
billboards.
Coon came across the company
while working at a boutique investment bank in West Florida and was impressed enough to pay around
$35,000 for the franchise when the bank shut down following the dot-com bust.
The company's model focuses on
finding houses that can be picked up cheap, usually for 60 percent of what it
could be resold for. The seller is willing to drop the price either because of
the condition of the house itself - it needs a lot of work before it can go on
the market - or because the seller is in a situation ranging from divorce to
looming foreclosure to a job transfer that pushes them to get rid of the house
quickly.
Home
buyers get more selective
During the boom years, selling
was easy, although buying cheap could be hard. That's turned around now, where a
buyers' market means picking up discounted houses is far easier than unloading
them once they're de-uglified.
"People are still buying
houses," Coon said, "but they're getting much more selective. Now
your house has to be the best looking at the best price. Just pricing a house
cheap isn't going to get it sold."
And the old real estate saw about
location, location, location hasn't changed, either.
"Is there retail activity in
the area?" is one of the questions Coon said he asks. "That's not
going to change just because we buy houses there."
In many areas, the shrinking
number of people who want to - or, with stricter lending standards in place,
are able to - buy houses has led Coon to change the way he sells the houses he
buys.
"There's a whole pool of buyers
who are gone," he said.
The major exit strategy for Coon,
now, is to sell the properties to other investors, many of whom rent out the
properties once they're fixed up. (The rental market is expected to boom this
year, as foreclosed-upon homeowners return to the rental market for their
shelter needs. HomeVestor recently started its first national ad campaign
targeting such investors.)
It's
about the business
Katsacos, who owns his own
company, MillenniumPropertySolutions.com, is aiming at a similar target.
The Ponte Vedra Beach businessman got into real estate by
building a portfolio of rental properties, looking to build wealth for
retirement. Some of the houses he planned on turning around and selling have
become part of that portfolio, but he was able to off load most of the
properties he bought during the boom times.
Other investors got burned, he
said, because they were so focused on the quick cash, they forgot they were
running a business.
"There's a lot of people who
got into this business without a lot of business acumen," he said.
"It's so easy to get into the real estate business, and it sounds great,
but like any other business, it's tough."
In the past six months, he's
turned toward the wholesale market: Rather than fixing up houses himself and
then playing landlord, he's looking to act as a sort of middleman, selling the
properties to investors who will either rent them or sell them.
And investors are responding to
his signs just like property owners do, he said. Sometimes the investors are
calling for help in getting rid of properties they paid too much for in the
boom years, but more and more he's hearing from people who are looking to buy
houses.
"Investors are always
looking to make money," he said.
And that's something some people
- careful people, people with patient money, people with a plan - will continue
to be able to do in real estate, Katsacos said.
"Everything goes in
cycles," he said. "In the long run, prices will be up. "
