As in any economic downturn, the wave of home foreclosures has attracted voracious opportunists — investors among them who are buying, fixing and then renting the places out.
In their wake are aspiring owner-occupants. How hard could it be, they ask, to pick up one of these houses on the cheap and make it livable?
For an answer, consider Jennifer Kuzara, 32, a grants manager for an Atlanta nonprofit organization. For about a year starting in early 2009, she spent about 1,000 hours on her foreclosure project. The gang of helpers she assembled included two real estate agents, a banker, an architect, a contractor and her parents.
To stand a chance of making the project work in the neighborhoods where she was willing to live, she needed $100,000 in cash. Ultimately, Kuzara and her parents were exposed to a fair bit of risk, all in the name of a bungalow in a middle-class neighborhood.
And while the specifics are particular to Kuzara, plenty of people in foreclosure-ridden markets in Florida, Arizona, Nevada and elsewhere are in for a house hunt that is going to look a lot like hers.
So this is the story of what it will take for their search to have a happy ending.
In 2006, when Kuzara had nearly six figures in student loan debt and the housing market was at its most heated, she was virtually certain she would never be able to afford a home.
Two years later, after she had finished her Ph.D. course work in anthropology at Emory University and begun full-time work, the housing market began to turn. Not long after, a friend was considering buying a foreclosed home as an investment property and encouraged Kuzara to look at the listings.
Through another friend, Kuzara found Lisa Iakovides and Michael Redwine, real estate agents at a company called Atlanta Intown. They established some price parameters and some items that would be deal breakers, like mold and crooked roof lines.
The house she finally bought had been divided in half and turned into apartments, which might have been why she did not have to fight so hard for it.
The 1,100-square-foot bungalow sits high on a small piece of property in the Edgewood neighborhood. It is one of those places where you can walk a few blocks to the left and find two stores with a fine malt liquor selection, then stroll 10 minutes to the right to Bed Bath & Beyond for high thread-count sheets to sleep off the hangover.
Iakovides managed to get a preliminary $39,000 offer accepted by the bank on the home in August 2009 and began trying to set a closing date. Kuzara drove by the home each day, planning the renovation.
But one day she found the front door wide open and called her real estate agents in a panic, worried that vandals were casing the place or that squatters would take up residence. Without really asking the bank's permission, the agents called a contractor to padlock the door. "Who would we have asked?" Redwine posed, incredulously, as if the bank that still owned the house was actually going to return his calls.
Kuzara's next step was to get together the money to pay for the place and the $60,000 or so in repair work. After trying to cobble together various combinations of tax credits, down payment assistance programs and government loans, it became clear that most banks preferred all-cash offers for their foreclosed homes.
But Kuzara had no cash. Ultimately, her parents, Mark and Jennie, borrowed $25,000 at about 8 percent interest against a life insurance policy and $50,000 more at a lower rate from his 401(k) and bought the $39,000 home themselves. They used the remaining money for the renovation, planning all along to sell it to Kuzara as soon as the repairs were done.
For that to work, however, Kuzara would need to qualify for a mortgage to buy it from her parents. She had no money for a down payment, though. To qualify for the Federal Housing Administration loan that she needed, the home, post-renovation, would have to be appraised high enough that her parents could give her some of the newly created equity for a down payment while still getting all their money back.
Because Kuzara bought one of the worst homes on a nice block, her agents were convinced that the renovation could yield an appraisal at the value that the bank required.
It helped that they had ushered in a contractor they had worked with before, whom they could count on to stay within the strict budget. Under his supervision, the renovations were finished in less than two months.
Then came the deciding moment: the appraisals. One came in at $130,000, while the other was for $145,000. As a result, the bank allowed Kuzara to borrow $100,000 to buy the home from her parents. Then she used some of the remaining, newly created equity for the required down payment.
Kuzara moved in last October, and today the cozy house has three bedrooms, two baths, a front porch for dinner parties and a back yard for her two dogs. She pays $828 a month on her 30-year fixed-rate mortgage, including taxes and insurance, and she has a roommate who chips in $500 month.
Including the weeks when she painted every inch of the interior, Kuzara spent about 1,000 hours on her foreclosure project — poring over listings, visiting houses and making her eventual home habitable.
So anyone who wants to do what she did needs to be ready to put in that much time. You may need a source of funds or willing co-conspirators, like Kuzara's parents. And you will need a team of people who know the rules of the foreclosure game cold.
The odds of success are certainly long. But for those with the patience to pull it off, it sure seems like a whole lot of fun to play this game and win.