Burton Kosmal makes a good living buying the product of other people's mistakes and misfortune. For five years, the high-energy 31-year-old has scoured DeKalb County for deals, buying more than 30 single-family homes and 100 housing units in all.
He recently bought a three-bedroom brick house where another investor had rolled $180,000 debt into the home and fell behind. "She didn't know what she was doing," Kosmal said.
Kosmal said he bought the house from the bank for $90,000 and spent $30,000 fixing it up. He bought low but didn't sell high - no one's buying high now. He, like more and more investors these days, rented it out.
Those who invest in foreclosures are mostly individuals who buy distressed properties at various stages of the process.
Some approach troubled homeowners for the purchases, some go to the courthouse steps, others wait for the bank to get stuck with the properties and then stare down the bankers to accept low bids.
"Everyone has their own little niche to make money," Kosmal said. "Mine is going into lower-income neighborhoods, buying foreclosures for 50 cents on the dollar and then renting them back to the government" in subsidized housing.
To him, the real estate world is filled with winners and losers. The loss column grows each day as homeowners and real estate investors with balloon mortgages issued in recent years are seeing huge monthly increases they cannot pay or refinance. The number of properties advertised for foreclosure in metro Atlanta were up 41 percent in July and August, as compared to the same months last year and 60 percent from two years ago, according to Equitydepot.net, an Alpharetta-based firm that lists Atlanta-area properties up for foreclosure.
Investors waiting to deal on the market's floor are seeing more real estate opportunities float their way but the bargains may be fewer - at least in the near term.
"We're seeing lots of people (facing foreclosure) with no equity, who owe what (the property) is worth; those aren't good deals for real estate investors," said Jeremy Brandt, CEO of fasthomeoffer.com, a Texas-based Internet company that connects distressed homeowners to investors from their area. "Investors are now having a harder time reselling their houses."
He said investors should buy lower- to middle-end homes and rent them because the rental market is expected to grow as foreclosures increase and potential homeowners fail to get mortgage loans.
The market turbulence is not only pushing people from their homes, "it's weeding out the novice investors, the seminar junkie investors," Brandt said, referring to those who got the low-end real estate bug from late-night infomercials or shows like "Flip This House."
One tried-and-true manner in "distressed property" investing has been to approach a homeowner before foreclosure and offer to pick up his mortgage with perhaps a little extra money - say, $1,000 cash - thrown in as an incentive. The seller would transfer the property title to a trust set up by the buyer, who files a new deed and informs the mortgage company the trust is now paying the loan. The mortgage lender could call the loan immediately due but rarely will because a paying mortgage is better than absorbing a foreclosed house, investor insiders say.
But that kind of deal is drying up because people behind in their payments don't own enough of their homes to make it worthwhile for an investor.
"Most who went with a mortgage in the past two or three years don't have enough equity for someone to come in and steal it," said Michael Froman, an Atlanta lawyer who represents homeowners trying to ward off foreclosure. "The number of fantastic deals (for foreclosure investors) is down right now."
John P. Hayes sees it differently. He sees the looming mortgage and real estate implosion crisis as "a time of opportunity for us."
Hayes is the CEO of Home Vestors of America, a Dallas, Texas-based investing firm best known for its ubiquitous "We Buy Ugly Houses" billboards. His company sold eight franchises in July, the company's best month ever. There are 19 franchisees in Atlanta and about 270 nationwide.
"Last year we had 180,000 leads from people in ugly situations - people facing foreclosure, who had a divorce, lost their job or had to move. This year it will be about 200,000 or more."
Homeowners facing balloon payments are having a hard time just simply "walking away" from their mortgages. In fact, many have to pay up to sell their homes. "We have people who bring $5,000 - or $20,000 - to the (closing) table to get out of the deal," he said.
Since it's harder to deal directly with distressed homeowners, Hayes said many investors will have to wait until banks get stuck with foreclosed homes they can't resell. Then the institutions will deal.
"More and more (banks) are realizing the values of the houses have fallen," he said. "They don't want to be in the real-estate business."
The market is getting uglier by the month, said Mark Sulimirski, an officer for Equitydepot.net. He said monthly listings for scheduled foreclosures in the 13-county metro area edged over the 5,000 mark this summer. Last year, the monthly totals hovered in the 3,000s.
Investors in the Atlanta area use the service as a tip sheet for possible deals. But he has noticed a churning in the investor pool who access his site.
"We get people who hear (Donald) Trump speak, get fired up and then bail out when they realize it's hard work," Sulimirski said.
Forriss Elliott knows all about hard work. The Lithonia resident recently leased out his last home after a suffering a bit of a rental drought. Since attending a real estate seminar four years ago, the 68-year-old Elliot has purchased 15 homes and rents out 12 of them. He figured, like others, that the rental market would be booming these days. But renting his houses has been tough. "We thought there would be an abundance of renters," he said. "But we're figuring people are doubling up: They're back with their parents. They're in the attic or in the basement."
Elliott has purchased many homes from families in the midst some crisis, and he tries to realize their straits and balance his urge for profit with human empathy.
"In one way, we're helping them out of a bad situation," he said. "... Many are sick and tired of being sick and tired. We're relieving their stress."