Home run
Help buyers build credit so they can pay you.
There is still money to be made in real estate. Just ask Ben Davidson, owner of Blake Rentals, an eight-employee firm in Richmond, Ky., south of Lexington.
The company's name is a holdover from an earlier business model; it hasn't rented anything since 2005, when it began selling the properties it was renovating after buying them at foreclosure auctions. Davidson, 32, was flipping about nine houses a year at that point, but the subprime lending crisis shut off credit to many would-be customers, and in the first half of 2007 he sold only three properties, for a total of $260,000.
"When we lost our buyers, my thought was, We still have property to move!" he explains. "Necessity brought change to our organization."
Davidson noticed that some frustrated home shoppers demonstrated enough cash flow to make payments; they just couldn't get mortgages from frightened traditional lenders. So last August he began offering owner financing. The response was immediate: In September and October, Davidson sold ten houses for a total of $662,500. Sales have continued at that pace, and Davidson typically makes 20% profit on each property.
When potential buyers respond to its newspaper ads, Blake Rentals selects the five most creditworthy candidates and sends them to a mortgage lender for screening. Many don't qualify for a traditional loan, but the lender tells Davidson which ones would be likely to get financed within a few months if they were to repair their credit rating by making on-time loan payments to someone else.
Davidson then offers those customers a "contract for deed," through which payments are made to Blake Rentals instead of a bank, for as long as two years. Blake charges a $1,000 setup fee, and when the borrower qualifies for a conventional mortgage, the bank pays off the loan to Blake. The company regularly reports to the credit bureaus and so far has had to take back only one house, at the request of an owner who lost his job. - By Malika Zouhali-Worrall
