Deals in Toledo lure overseas, out-of-state buyers to pounce on foreclosures

11/14/2010

Jon Modene, outside a North Toledo house he sold to an Australian, says out-of-town investors see opportunity for profit.

The Blade/Lisa Dutton
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Area residents may lament Toledo's ongoing housing woes and their struggles to retain foreclosure-racked home values, but those elsewhere are beginning to find opportunity amid the carnage.

Local real estate brokers - especially those who specialize in foreclosed properties - say they are seeing an increasing number of buyers from out of state and overseas who are snapping up low-cost foreclosed homes to turn them into rental properties.

"I have a guy from Australia showing up next week," said Jon Modene, an agent with Re/Max Masters in Perrysburg.

Mr. Modene said he is helping buyers in both Australia and Great Britain to purchase income property in Toledo. Even though the bulk of foreclosed houses are bought by local people, he has worked with foreign buyers who snapped up one or two houses at a time. Purchases in higher multiples by those buyers probably are coming, he said.

"As one [foreign buyer] explained it to me, the cheapest house where he lives is $250,000, and it's not livable. But they come to Toledo, and for $250,000 they can buy 100 [rental] houses at the $2,500 price point. It's like a joke to them, our housing values," Mr. Modene said.

The plan by outside-the-area buyers is to have management companies rent out the house, experts said. Those buying these houses as income property often look to programs such as the federal Section 8 Housing Choice Voucher Program - which assists very low-income families, the elderly, and the disabled - to help prospective tenants pay their rent.

Bradley Jones, from Perth, Australia, is one such buyer. He told The Blade last week that he has invested $35,000 in Toledo real estate and receives $20,000 a year in rental income. He could recoup his investment in less than two years.

He started buying local property in August, 2009. He often rents to people receiving Section 8 vouchers, so he has steady income. One property purchased for $8,500 now pays $6,800 a year in rental income. Mr. Modene assisted in the purchases.

Mr. Jones said that depressed housing prices, his ability to get financing to buy the houses, and the solid rental base in Toledo have made the investments worthwhile.

"For a foreign investor, the situation is basically the perfect storm, and I know that it won't continue forever," he said in an e-mail interview. "I have to get my skates on and buy as much as I can as quickly as I can."

The relatively low purchase cost and the decent rental income make local property attractive to investors, and the government-paid rent reduces the landlord's risk, experts said.

More than 6,800 families are on a waiting list for Section 8 housing in Lucas County. Last year, the program issued 3,912 vouchers totaling more than $23 million in housing assistance.

Mr. Jones, for example, said that he receives $525 a month in Section 8 rent for one Toledo house he owns.

Housing prices in the metro area have dropped in the past year, and foreclosures, although dropping, are still at a high rate. Through the end of October, 3,318 foreclosures have been executed in Lucas County this year, down 1 percent from the 3,359 completed during the first 10 months of 2009, county records show.

Firm estimates of the number of foreign buyers of those houses are not available. The Lucas County treasurer said only 110 tax bills are mailed to addresses outside the United States, and those could include people living abroad temporarily or in the military.

Many of those purchasing foreclosed homes for income property are setting up shell companies or limited liability corporations to handle the transactions, which can effectively conceal a property's true ownership. Mr. Jones from Australia buys his homes under J. Ventura Holdings.

The biggest areas with such purchases are in East and North Toledo, and generally are houses selling for under $20,000, area real estate agents said.

Shawn Kellerbauer, a broker with Danberry Realty, said he recently had two closings involving out-of-state investors whose individual business models steered them toward properties in North and East Toledo.

Mr. Jones said his Internet research for investment opportunities led him to Toledo. He said the "highest yields were still to be found in Toledo."

He added: "The property prices had plummeted. People were terrified to buy and were now looking to rent. This pushed the cost of housing down while keeping rental prices stable.

"I understood that the quality of the houses hadn't fallen, just the perceived value of the houses. I figured that, as the banks weren't real estate agents, the properties being foreclosed were probably being sold at a huge discount."

Mr. Kellerbauer said the out-of-state buyers seem to have an advantage in the foreclosure market because they generally have better access to capital. Many banks are reluctant to write mortgages on properties where the relative risk may outweigh the rate of return, so the local foreclosure market favors those with cash to spend, he said.

The 2008 American Community Survey estimates Toledo has 49,100 renter-occupied housing units, in houses and apartments. The largest proportion of renters — about 41 percent — pay between $500 and $749 a month. Twenty percent pay between $750 and $999, and about 18 percent pay between $300 and $499.

Although foreclosed houses in Toledo may look inexpensive on paper to outside investors, there are costs of ownership that have to be dealt with, especially when those houses are to be used as rentals, Mr. Kellerbauer said.

“The reality is, you need somebody out there managing them,” he explained.

Rodney R. Culler, a broker with Welles Bowen Realty Co. Inc. who specializes in foreclosed properties, said the out-of-state customers he sees are largely coming from western states such as California and Hawaii.

“They are coming here and buying housing stock at attractive prices because they know our state is one of the areas that is going to rebound the quickest,” Mr. Culler said.

“A lot of them are buying and then renting them out, and in other areas of the country [with low housing values], they can't find a tenant.”

Mr. Culler, who said 90 to 95 percent of his sales involve foreclosed properties, said long-distance buyers choose Toledo specifically because of its high occupancy rate. “Our occupancy rate [among rental housing] is actually increasing … ” he said.

He has noticed many transactions in the Library Square area of west Toledo, near Sylvania Avenue between Lewis Avenue and Jackman Road. He said investors he's worked with are attracted to the neighborhood because of its perceived stability and potential for gains: Home values have “fallen 35 percent there in the last three years,” Mr. Culler said.

Jeff Bockrath of Re/Max Preferred Associates said he is working with clients overseas who have found opportunity in Toledo.

“I'm working with two people [in Europe] right now who are looking for homes that they can buy for $10,000 or $15,000, that they can put another $10,000 or $15,000 into to fix them up,” he said.

“Our rental market is still pretty good. For what you can buy in Toledo and rent out, it's still pretty positive and a pretty good cash flow.”

Contact Larry P. Vellequette at:

lvellequette@theblade.com

or 419-724-6091.