Sub-subprime
Last night a reader emailed me a link to this article in the Wall Street Journal Online, with a note:
Bill, I ran into these people today on East 57th. I am sure you have seen their signs, red and white with the down payment of $500. and monthly payment of $350. Interesting conversation.
From the article:
Within 10 minutes, Mr. Barnes had agreed to buy 12 homes in six states for a total of $35,250.
Banks expect to get far more than that for most of their foreclosed homes. In cities where housing is expensive and land is valuable, lenders usually hire real-estate agents to market foreclosed properties.
Mr. Barnes and his investors buy the dregs: homes in depressed neighborhoods in cities like Detroit and Cleveland, where there is lots of vacant housing, or in rural areas where few people are looking for homes. “Real-estate agents aren’t real motivated to deal with these houses” because their commissions would be so small, says Mr. Barnes. “The banks just want them gone.” Until lenders sell the houses, they have to pay for taxes, insurance and maintenance.
Mr. Barnes says that because the houses cost so little, it isn’t worth his time to inspect them before buying. He guesstimates what they’re worth, based on experience. Most buyers of foreclosed homes spruce them up before trying to resell them. Mr. Barnes wants nothing to do with renovation, a time-consuming and expensive process.
Houses are sold “as is.” When one buyer called to complain about finding a dead possum in a newly purchased house, Teresa Kastanes, who is married to Mr. Barnes’s lawyer and helps with the business, recalls responding: “Listen. I’m throwing in the possum for free.”
In the ecology of real estate predation, I guess you’d call Barnes and his “investors” the hyenas — skulking in behind the real predators to strip the last shreds of equity from the bleeding corpses.
More about Barnes in this March NPR piece.