Fix-It Investors Can Make Money from Repo Homes

While boom-time speculative investors contributed to the wave of repossessed homes nationwide, fix-it investors during the crisis are gaining income from these repo homes using traditional investment principles.

These fix-it investors buy bargain-priced repo homes, fix them and then rent them out. They not only fix the houses themselves, they also find tenants, manage them and then make occasional repairs.

Michael Larson, a Weiss Research analyst, said the investors during the boom were mostly flippers — speculators who buy distressed properties and sell them a few days or weeks later at a profit. He said long-term investors are those who buy homes at a price level that allow them to profit from rent.

Edward Green, 64 years old, and his 60-year-old wife have been investing in repo homes since 2008. They now have five rental properties. Their first investment, however, was a mistake. It was not a foreclosure property; it was a condo sold to them by their daughter for $250,000 in 2007. They took out a mortgage to pay the condo and rented it out cheaply. When they wanted to sell it, they could no longer sell it because the flood of repo homes started and the housing crisis began.

The Greens were not looking for a home to buy when they made their second investment. They saw an opportunity, and grabbed it. Olivia Green, who worked in real estate, showed a foreclosure property to a client who did not like the house because it looked too damaged, but Olivia saw something.

Olivia then invited her husband, whose business is in home repair, to take a second look at the property. After calculating the repair costs, they bought the property in cash for $235,000, spent around $16,000 for repairs and then rented it out at $1,695 to Olivia’s client who originally rejected the property.

Encouraged by their second investment, they searched for other cheap foreclosure homes in other states. They bought three more bargain-priced repo homes: one priced at $16,000 which needed $16,000 in renovations; another priced at $35,000; and a townhouse priced at $60,000.

Glenn Kelman, head of online brokerage Redfin.com, said individuals planning to invest in buying and renting out repo homes must examine themselves if they are willing to maintain their rental homes themselves and spend some of their weekends or nights repairing something in their rental homes.

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