Boom times for turn-around specialists...

From a recent Realty times article come this story - The economy may be flat and the housing market generally in the tank, but it's boom time for investors who know how to buy houses at fire-sale prices, fix them up and sell or rent them out. It's also boom time for the companies that can supply those investors with financing when they need it.

"This is an absolutely wonderful market environment to be in," says Frank Sharp, who heads Watershed Renovation Capital, in Alexandria, Virginia. Sharp's company specializes in funding real estate turnaround investors -- people who know how to acquire distressed properties, mainly houses, and reposition them quickly. Watershed provides short-term acquisition and rehab financing to investors at so-called "hard money" rates: 12 percent for the first three months, 14 percent for the next three months.

Meanwhile, the biggest corporate player in the residential turnaround real estate field, Dallas-based HomeVestors of America -- best known for its "we buy ugly houses" ads -- is also having a banner year. Not only are its 230 franchisees doing record volume, but the company has begun accepting "associate franchisees" - investors who can only devote part of their work time to real estate. Associates and full franchisees invest directly themselves, buying distressed real estate at an average 40 to 50 percent below market value, fixing them up, and either selling or holding them as rentals.

A key feature of the HomeVestor program, according to vice president Jason Killough, is the availability of proprietary, short-term money to acquire, fix up and resell houses. But HomeVestors doesn't just give that money away: It charges a hefty 14 and three quarters percent for the first six months -- and expects most franchisees and associates to get the job done by that deadline. Short-term turnarounds are the norm, said Killough, because "our objective is to move that house" -- at a quick profit to everyone involved. We have a couple of fairly successful entrepreneurs doing this in the Milford area.

While these are boom times for the pros in this business, it is also a time of huge risk for the amateurs. I am seeing more and more homes that were bought out of foreclosure by would-be house flippers and which are now in foreclosure again. Those novice-time investors often great underestimate the time and money involved in fixing up the place and often don’t have the contacts within the building trades to get good deals on materials and labor on the needed work. Somehow, they go into this venture thinking that it is a weekend-work thing that they can do themselves. Wrong!

It’s sad to see a house that has been foreclosed for the second time in the last year, sitting there half finished, in terms of fix-ups. You don’t know whom to feel worse for – the original owners who lost it or the novice would be fixer-upper, who lost it the second time. Often there is an untold story about the second home that is now in foreclosure –that of the would-be fixer-upper who over-mortgaged their own home to get the funds to fix up the home that they hoped to flip. That’s just plain sad!

So, if you have the skills and contacts and extra money to be able to afford to take the risks involved, these are great times for real estate investment opportunities. If you are missing one or more of those requirements, please think twice before jumping into this game. You could lose more than your investment in the fixer-upper house.