Story Photos
 Trey Davis and his partners bought this home on 30th Ave., added landscaping, fixed the gutters, did repairs and clean up, then put it back on the market. To those who criticize his line of work, he says, '... if I don't buy them, it's not like the guy who lost his home gets to keep it ...' Bill Wagner / The Daily News
|
Risk and reward: The other side of home foreclosures
Sunday, January 4, 2009 2:12 PM PST
By Amy M.E. Fischer
Printable version
E-mail this articleEvery day, Longview resident Trey Davis and his business partners scan the newspaper listings of foreclosed properties up for auction. When they spot a foreclosed house that appears to have investment potential, Davis heads to the Cowlitz County Hall of Justice lobby to join in the bidding.
Davis, 30, is among a handful of regulars who show up at the auctions hoping to buy a house cheaply to renovate and sell at a profit. A Realtor for Coldwell Banker Flaskerud, Davis has owned an investment company on the side for four years, and he and his partners buy houses to flip or turn into rental properties.
Davis, a jazz musician who’d rather be practicing his guitar than analyzing the real estate market, said he gets defensive when people seem judgmental about his line of work.
“What I tell people is, if I don’t bid on these and buy them, it’s not like the guy who lost his home gets to keep it or something. ... We’re not taking advantage of people at all. It’s nothing like that,” Davis said. “But you do sort of feel like a bottom feeder sometimes.”
Friday, after showing the auctioneer cashier’s checks to prove they had money to back up their bids, Davis and two other men began a price war over four foreclosed properties. The opening bid price of $88,000 for a Castle Rock home slowly crept up in $200 to $500 increments. After 20 minutes, Davis walked away with a winning bid of $108,100.
It’s a risky business that takes research, guts, cash and caution. But if done properly, one can earn a living buying and selling foreclosed properties. The number of foreclosures has jumped from 2007, when 370 Cowlitz County residents received a notice of trustee sale — an indicator of a possible foreclosure of their home. Cowlitz County had 462 properties with foreclosure filings in the first 11 months of 2008, according to www.realtytrac.com.
To come up with enough cash, groups of investors will pool their money. Davis formed a partnership among several people with years of experience in real estate, and each has his or her particular area of expertise. Together, they buy between 10 and 25 houses each year, hoping to land one or two extraordinarily good deals to make up for the razor-slim profit margins — or losses — on the others, Davis said.
“We’ve bought some pretty bad ones,” he said. “I just try to look for a really safe bet.”
A desirable property will have a clean title, be in a good location and be relatively easy to fix up, he said.
He and his partners are taking a leap of faith that after cleaning or renovating a house, they’ll be able to sell it quickly and make a profit that can be reinvested into the next purchase.
But because home prices are falling and houses are taking longer to sell, the business is “not as good as it used to be,” Davis said. In 2005-2006, there were many foreclosed homes worth buying, and they sold much faster than today. In today’s market, Davis and his partners must deeply discount the houses and sell them below their market value, he said.
“We’ve gotten pinched, because as of yet, we haven’t seen the foreclosure deals get better,” he said.
According to Longview resident Doug McKee, who bought a house in South Kelso at Friday’s auction, the key to success is timing. Buyers have to know the local housing market and keep track of “everything” — interest rates, the state of the national and local economy, and the size and price of houses that sell the fastest.
Before placing a bid, buyers must figure out the house’s assessed value compared to the renovations needed, the maximum price they’d be willing to pay and what similar houses are selling for. And then they must be prepared for the auction to fall through.
McKee, 48, said he’d planned to bid on six houses Friday, but only one of those houses actually was put up for auction. Many properties listed for foreclosure auctions don’t make it to the auction block because banks buy them back or the auction is postponed. Some properties don’t get any bids because buyers think there’s not enough value in the homes.
Even after careful research, there’s still a risk of getting a lemon. A buyer could end up with a house formerly used as a meth lab. Or a house with unforeseen problems, like a dry well or broken septic system, that costs more to fix than the house is worth.
“You can find yourself with your butt in a wringer,” McKee said.
McKee, 48, found out too late that a house he’d purchased at auction had major structural problems. He couldn’t closely inspect the house beforehand because the owner was guarding it with a 12-gauge shotgun, he said.
“Ten percent of them are really upset,” McKee said of the owners. “Ninety percent of them understand, ‘I didn’t pay my bills, the bank’s going to foreclose.’ ”
Some angry homeowners deliberately inflict damage on the house, knowing they’re going to lose possession of it. They’ll steal switchplates and cabinets. They’ll punch holes in walls, dig up landscaping and leave behind truckloads of garbage. They’ll dump gallons of paint on the floor. Some people shut their pets inside with food and water so the new owner inherits a house full of smelly surprises.
“People do crazy stuff,” Davis said.
Friday, after placing the winning bids on a couple properties, Davis left the courthouse to inform the properties’ current residents it was time to move out.
“It sucks,” Davis said with a sigh. “That’s the rough part of my job that I hate. It’s a crappy feeling having to go move people.”
He tries to get to know the circumstances that landed each homeowner in trouble, and in cases of extreme hardship, he does everything he can to avoid evicting them, he said. He’s seen people who’ve been forced to choose between paying for medical care or a house payment, he said.
But then there are the roughly 50 percent of people who, in his estimation, are “trying to milk the system,” he said.
“At first I used to feel sad and worried about how I was going to approach people, but over the last four years, I’ve become more comfortable with the process,” Davis said.
He’s discovered that many homeowners have missed from six months’ to more than a year’s worth of mortgage payments, and many take advantage of the system by even renting out their houses during that time, he said. And so, he’s learned “you have to be tougher.”
McKee, who’s been buying foreclosed properties at auction for 12 years, recommends sitting down with a lawyer before getting started in the business. The houses can be mired in a tangle of financial liens and taxes. It also pays to spend as many hours as you need to read the fine print on the contracts, McKee said.
Not wanting to see anyone lose a house, McKee advises homeowners in financial trouble to call their mortgage lenders to see what the bank can do to avoid foreclosure.
Homeowners also may visit the Longview-based Family Finance Resource Center at 1339 Commerce Ave., which offers free counseling for the pre-purchase of homes and for people facing foreclosure. It’s the only counseling sanctioned by the U.S. Department of Housing and Urban Development in Cowlitz County.
Davis, who aspired as a boy to become an architect, said he takes satisfaction in improving a low-income neighborhood one house at a time. He estimates his company has easily invested $1 million in capital improvements in Cowlitz County’s housing over the last four years. People have thanked him for cleaning up a neglected house with junk cars on the lawn and trouble-making tenants, he said.
By contrast, banks that buy at foreclosure auctions make few or no improvements to properties and just try to resell them as quickly as possible, Davis said.
“I really like to see the houses get better,” he said.
nexus wrote on Jan 4, 2009 12:28 AM:
allbeefnobull wrote on Jan 4, 2009 1:15 AM:
mom of four wrote on Jan 4, 2009 3:16 AM:
nipsey wrote on Jan 4, 2009 4:13 AM:
Stop taking advantage of people and get a real job! "
AmericanGirl wrote on Jan 4, 2009 9:22 AM:
Rural Citizen wrote on Jan 4, 2009 10:32 AM:
It's the American way. "
columbian wrote on Jan 4, 2009 10:55 AM:
slowburn wrote on Jan 4, 2009 11:54 AM:
petunia wrote on Jan 4, 2009 12:34 PM:
allbeefnobull wrote on Jan 4, 2009 1:45 PM:
concerned citizen wrote on Jan 4, 2009 3:50 PM:
Simple Man wrote on Jan 4, 2009 5:23 PM:
mom247 wrote on Jan 4, 2009 5:43 PM:
Aconserve wrote on Jan 4, 2009 6:06 PM:
aelkins02 wrote on Jan 4, 2009 7:57 PM:
allbeefnobull wrote on Jan 4, 2009 9:54 PM:
JL Patrick wrote on Jan 5, 2009 8:25 AM:
allbeefnobull wrote on Jan 5, 2009 11:43 AM:
tigersmom wrote on Jan 5, 2009 12:21 PM:
columbian wrote on Jan 5, 2009 5:14 PM:
citizencrane2 wrote on Jan 8, 2009 1:22 PM:
i think the banks get them back and sell them on the open market. either way, the homes get resold eventually. it is just a matter of how they are cared for and who gets the profit: an investor type or some bank. the banks aren't exactly helping much now, and certainly not in the last 3 years.... they got us into this mess by approving people who should be approved. i like seeing local guys get in there..... every extra buck we keep local is going to help this local economy a little bit.
if they were conning people out of a home somehow, that would be different...but this is a public auction, right? sounds too risky for me, but shame on those so quick to condemn. "
Past Month's Most Commented Stories