Foreclosures are rising, home prices in some neighborhoods are falling and the lending industry is in turmoil.
What a great time, some think, to be a real estate investor.
This down market is a far cry from the housing boom of a couple of years ago, when rapid sales and price jumps drew hundreds of rehabbers, "flippers" and wannabes to Baltimore in a modern-day gold rush. Some, caught by the sharp change since then and saddled with loans they can't cover, are trying to get out as fast as they can.
But others are jumping in, seeing in the market reversal an opportunity to buy low now and sell high later.
"We are getting new people all the time," said Alan Chantker, president of the Mid- Atlantic Real Estate Investors Association, based in Owings Mills. "You can make money in any market if you know what you're doing. ... I hate to say this, but I'm sure there were people in the Great Depression in the '30s who made their fortunes buying properties for pennies on the dollar."
The investors association has just over 300 members, up slightly from the end of the housing boom in 2005 and about 100 people more than in 2004. Investors United School of Real Estate in Baltimore, which offers a yearlong program, said it's getting a steady stream of 15 to 25 new students a month. ASPIRE America, an investing "academy" in the city, said its enrollment is about 300 -- up from 60 last year.
Some foreclosure-prevention advocates worry that these new investors will end up in over their heads, speculating dangerously in a tricky market that could deteriorate further.
City home sales have dropped considerably since the market peak, when about 70 percent of homes bought in Baltimore were snapped up by people who didn't plan to occupy them. City permits for significant rehab projects have dropped, too, down 15 percent in the last fiscal year for work valued at more than $5,000.
But that doesn't mean there's a shortage of investors. It's just that those now in the market aren't grabbing any old place, as some did when double-digit price increases made everything look like a bargain. And they think trends are favorable, even the meltdown in the mortgage market, because many investors don't use traditional financing but can find sellers squeezed by payment spikes on adjustable rate mortgages.
In investor groups and seminars, there's a lot more talk about buying and holding -- a sea change for Baltimore, which saw several years of buy-and-sell-quick. Investors are also trying to capitalize on the growing numbers of loan defaults and foreclosures.
Teresa Boone-Ofosu, who stopped working as an accountant last year to focus on investing in Baltimore, is on the hunt for those most motivated of motivated sellers: people in danger of losing their homes because they can't pay their mortgages. She's trying to persuade lenders to forgive part of the debt so she can buy for less than the owners owe, which in investor parlance is called a short sale.
Boone-Ofosu, a Bowie resident, said she mails an average of 250 to 300 letters and postcards a week to prospective sellers -- not just homeowners in trouble but also landlords with problem tenants, people filing for divorce, owners with vacant properties.
She has gotten close to buying a few homes, but nothing has gone through. She's not desperate, as one lender discovered after it told her that she would have to pay to postpone a foreclosure if she wanted the right to continue negotiating over the property. (She said no thanks.)
"I'm just waiting for the right one," said Boone-Ofosu, whose husband, a mechanic, is also interested in investing. "In every market, you can find an opportunity."
Robert Bostick, chief executive of ASPIRE America, is also working on short sales. In one deal he struck this summer and expects to go to settlement on this month, he said, the lender agreed to waive $28,000 of the balance on a $65,000 mortgage. Last week alone, lenders holding mortgages on several other properties he wants came back with counteroffers, he said.
"They're bending over backwards at this point in time to get deals done," said Bostick, a rehabber with a business administration master's from University of Pennsylvania's Wharton School.
Local institutions do consider short sales, though the requests they're seeing are largely coming from real estate agents, according to the Maryland Bankers Association. But a national industry observer said Baltimore investors shouldn't hold their breath waiting for great deals.
Most new mortgages are held not by banks but by Wall Street investors, which means the company servicing the loan can't make independent decisions about short sales, said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter in Bethesda. Also, he said, local foreclosure numbers haven't risen to the crisis point that would force lenders to cut their losses.
"If you're in really distressed areas like Cleveland, Detroit, I think you'd find lenders more willing to talk," Cecala said.
Whichever way an investor buys property, Sherman Ragland said it's a good time to hold on to it and rent it out. Ragland, managing director of the DC Real Estate Investors' Association, which focuses on the Baltimore area as well as Washington, sees the nationwide end to easy lending standards as further incentive to be an investor-landlord.
"A number of people who thought they were going to buy houses aren't," he said. "They're going to wind up renting."
That's bad news for investors who rehab properties to resell them. Columbia resident Chris Smith, 49, spent all summer waiting for the buyer of his latest project to get a mortgage.
"I hit the lending crisis," said Smith, who said his profit ended up being about $2,500, rather than the $50,000 he had expected.
But Smith -- an engineer who switched to investing full time in 2004 and also got a real estate license -- remains undaunted. And he's in a better mood now that he's looking to buy a prospective rehab property rather than sell the finished product. He's not worried about getting financing of his own: He has a home equity line of credit to tap.
Many investors turn to sources other than traditional home mortgages for funding. So-called "hard-money lenders" who give short-term loans with high interest rates are a mainstay of the market. Though they're lending more cautiously now, their cash doesn't seem to be drying up as it has for some of the mortgage outfits that relied on Wall Street, Chantker said.
Investors applying for a traditional mortgage are facing the same sorts of increased hurdles as regular homebuyers. "Banks are looking at people with good staying power," said Laura Randall, principal of World Capital Lending, an investor-focused mortgage broker in Sparks. "Particularly those who buy to resell, liquidity has become a big factor."
Other investors forgo financing entirely. At an Investors United workshop last week, school President Ian Charles Parrish told a roomful of prospective students that they can negotiate a contract, assign it to another buyer for a higher price and get a check at the settlement table without putting money down.
"If you don't have to spend money, why should you?" he said.
It was a varied group that gathered to get free investing tips and hear a pitch for the Northeast Baltimore school, which charges $12,500 for its year of instruction. The 40 people included a 16-year-old boy, a woman with white hair tucked neatly in a bun and a church pastor -- plus 20 members of his congregation.
Michael Chapman, bishop and senior pastor of Word Alive Christian Fellowship in Baltimore, said he would like to raise money for the church building fund through real estate investing. He figures some of his congregants could use another source of income, too.
"I've heard this year that Baltimore was the prime area -- real estate investors were coming here," he said. "I'm living here. So I think I should try."
He said he's not worried about trying this in a down market. He's not wringing his hands over the idea of financial risks, either. "Instead of risky, I think it would be a good challenge," Chapman said after the workshop. "I mean, the way they explained it, it's really up to you."
Not everyone makes money, though. A Sun analysis this year found that nearly 30 percent of the city homes that lenders began foreclosure proceedings on from January through March belonged to "nonowner occupiers," which in Baltimore usually means investors.
Without the rapid sales and appreciation of the housing boom, novices -- even the more experienced, in some cases -- are getting into trouble. Chantker said he gets called daily by people facing foreclosure, the majority of them investors.
"A lot of people three years ago, two years ago, they bought a piece of property and did all the wrong things, and they still ended up making money. Now, not the case," said Joe DiMaggio, board chairman of the Baltimore Real Estate Investors Association and an investor for 20 years.
Robert Strupp, director of research and policy at the Community Law Center in Baltimore, said that should be a red flag to newcomers. In his opinion, now is not the ideal time for new investors to buy unless they have the wherewithal to hold onto properties until market activity picks up again. There's no guarantee that will happen soon, he said, not with sales dropping and inventory rising.
Strupp and Phillip R. Robinson, executive director of Civil Justice Inc. in Baltimore, said they are skeptical about the plethora of investing classes, seminars and $1,500-a-pop "how to" products, some of which have people with no legal training giving advice about complex laws.
Maryland's two-year-old regulations about investors who buy from people facing foreclosure, passed to keep con artists from defrauding homeowners, threaten fines and jail time for those who do not toe the line. One of the rules: A purchaser who resells within 18 months must turn over at least 82 percent of the profits to the previous owner.
Strupp said investors should beware, and consider taking classes for a real estate license.
"These are times to be even more wary," he said.
David Harper, 26, a Baltimore accountant, didn't jump into investing blindly. He was trained as a real estate appraiser before he began looking last year.
So far, he has offered contracts on about 20 homes in and around Baltimore and has only one to show for it -- a $113,000 rowhouse he plans to hold for a few years and then sell. It might be a buyer's market, but he said he keeps running into competition.
"There's a lot of investors out there," Harper said.