Entrepreneur Magazine – July 2008 Issue

Silver Lining

Every bust creates a boom, and the real estate market is no different. Here are 10 real estate businesses that are primed to take off.

By Carol Tice | Entrepreneur Magazine – July 2008

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Silver Lining

Every bust creates a boom, and the real estate market is no different. Here are 10 real estate businesses that are primed to take off.

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The current real estate downturn may be bad news for homeowners, but it means opportunity for savvy entrepreneurs. To find business niches that will grow during the down cycle, we turned to two real estate experts: Robert Kiyosaki, Entrepreneur’s “Rich Returns” columnist and author of the Rich Dad series of books, and Rick Sharga, vice president of marketing for real estate data provider RealtyTrac. They had so many great ideas, we didn’t have room for them all!

Below, we’ve compiled their top 10 real estate-related business ideas for 2008 (in no particular order). You don’t need to be a real estate agent or have any special training for most of these niche businesses. You also don’t need a lot of startup capital, and only one requires that you buy real estate. Many will work whether or not you’re in a market that’s particularly hard-hit by foreclosures. They’re all good opportunities that any smart entrepreneur can use to ride the market downturn straight up to business success.

1. REO Outsourcer: Banks have no expertise in home repair or property maintenance for their foreclosed homes–known in the industry as real estate-owned, or REO, properties. So until these properties sell, lenders often rely on REO outsourcers, also called property preservation specialists, to get the homes market-ready. While anyone can run a property preservation company, real estate agents sometimes get into this niche as well, hoping to land listings from the owning banks.

The recent rise in foreclosures means there’s ample opportunity to jump into this niche, says Tyler Drew, 24, co-founder and COO of U.S. Best Repairs in Tustin, California. Many foreclosed homes are left trashed and need repairs to be salable. Even homes that are in good condition need regular yard maintenance and cleaning to stay ready for buyers.
Drew, a former executive assistant at a bank, partnered with licensed contractor Mark Zaverl, 47, to start U.S. Best Repairs in late 2006. They began by providing lawn mowing services for four bank-owned homes in their market.

Word spread rapidly from there, Drew says, and the company now provides services throughout California, Alaska and Hawaii. The company also added lockout services–the often unpleasant task of evicting the former homeowner and getting the locks changed. At first, the company did one or two lockouts a day, but that number has since risen to 35 lockouts a day. Drew projects that sales this year will hit $5 million. He says, “We’re looking at rapid expansion for at least the next three years.”

2. Home Repair: Many foreclosed homes need fixing up to get their bank owner the best resale price. So it’s no surprise that home repair firms are also seeing a surge in business. In Buffalo, New York, CertaPro Painters franchisee Dominic Ventresca, 24, says tightening mortgage lending has created an upswing in jobs painting homes for both sale and remodel. Whether they’re staying in their homes or trying to sell them, homeowners are looking to upgrade.

Revenue has doubled for Ventresca’s CertaPro business in the past year, and he expects sales to hit $1.5 million for 2008. “People are definitely calling us to get their houses as clean as possible,” he says. “It’s got to be in tiptop shape to turn.”

3. Retail Tenant Finder: As retailers close locations, there’s a business opportunity in helping those business owners find replacement tenants. In the real estate industry, this is known as a disposition, and it can involve subleasing by the existing tenant or arranging a settlement where the existing retailer bows out and a new one gets a new lease from the landlord. The disposition specialist receives a fee from the landlord or the exiting tenant for locating the new tenant.

While you don’t need to be a real estate agent, you will need to partner with an agent to qualify to negotiate disposition deals, says Ann O’Neal, president of TKO/Real Estate Advisory Group, which does dispositions for regional chains. She says there’s opportunity in this niche for those who can handle these tricky deals, which usually require landlord approval: “I suspect there will be 6,000 stores closing [nationwide] within the year.”

4. Foreclosure Information Sales: With rising interest in foreclosure properties, there’s a potential gold mine in collecting and marketing foreclosure listing information. National powerhouse RealtyTrac reports that its paid subscriptions have more than doubled since 2004, and it has been able to charge more for services as well.
There’s also opportunity in selling foreclosure information focused on a single market. Real estate investor T.J. McKinney, 36, started Illinois Foreclosure Listing Service four years ago, mainly to help himself and his partner Peter George, 37, find investment property.

Over the past two years, their Schaumburg, Illinois, foreclosure information business has grown from $150,000 in revenue to an expected $1 million this year, as wannabe investors, real estate agents and others have discovered the service, McKinney says. Revenue comes from ads, seminars and subscribers, most of whom pay $79.95 per month for the premium membership.
The 22-employee company combs government offices to compile listings for the service, covering eight counties in and around Chicago. Selling this type of information in the current market is a no-risk way to profit from the foreclosure cycle, says McKinney, adding that “most of the people who profited from the gold rush sold shovels.”

5. Wholesale House Flipping: This business model requires buying foreclosure real estate at a substantial discount off market value. This is often done through a “short sale,” in which you convince the owning bank to discount the value of mortgages owed. The key is to line up other interested investors before the purchase and quickly resell the property at a profit, says J.P. Vaughan, real estate investor and co-founder of Creative Real Estate Online.

If you have real estate savvy in your market and know what properties are really worth, you can do well, Vaughan says. Generally, she adds, you don’t even need a lot of cash–you can tie up a sale contract for $10 then simply sell that purchase to the next investor. But where do you find the investors you need? Vaughan says that’s easy these days, as a lot of disenchanted stock market investors are looking to put their money elsewhere. “There are always cash investors around,” she says. “Run an ad in the paper, network, go to your local real estate club. Then build a big buyer list so you don’t get caught holding the bag.”

6. Property Scout: If you don’t have the boldness to jump straight into wholesaling, there’s a related business niche that can help you get your feet wet. A property scout does the legwork for investors, locating deals and passing along leads for a fee. Longtime real estate investor Steve Cook says he started out working as a property scout for a real estate investor. “It’s a great way to learn about the market and who to turn to for money,” he says.

Once you gain confidence as a scout, you can start participating in the real estate deals you’ve located for investors. Be sure to operate under contract with your investors, Cook warns, or in some states your property scouting activities might be considered as illegally acting as a real estate broker without a license.

7. Rental Property Management: With the market for home sales slowing and prices declining, property managers expect many homeowners and investors to rent out their homes and wait for the market to improve. That’ll mean more opportunity for property managers.

“Generally, what’s good for the real estate market is bad for us, and vice versa,” says P.J. Chapman, 33, second-generation owner of Chapman Properties, a four-employee property management company in Boise, Idaho.

Chapman’s company handles about $1.5 million in rents per year, and he expects to see that continue to rise steadily through the downturn. Idaho is one of several states where property management is an unregulated field, and Chapman says plenty of new competitors are popping up in Boise, snapping up contracts to manage newly rented condos and homes.

8. REO Broker: This niche can provide an income stream for real estate agents whose businesses have slowed, but you should know that it often requires substantial cash. An REO broker works with banks that have foreclosed homes they need to unload. The broker lists and markets the homes, often paying utilities and other maintenance costs during the sale process, receiving bank reimbursement only after the home is sold. At the National REO Brokers Association, group president Mike Krein reports that there has been plenty of interest from existing agents in becoming certified REO specialists–the industry designation for the top echelon of experienced REO agents. A year ago, the association received about 100 applications a month from agents seeking to go through the $300 certification process; by early 2008, the association was seeing 300 to 400 applications per month.

Longtime REO agent Dana Granthas sold bank-owned properties through two previous downturns. He says being a successful REO broker depends on your ability to develop relationships with banks’ REO managers. Doing a large number of deals is critical, too, as the REO broker’s typical commission is smaller than average. That should be doable right now, says Grant, as the institutions he deals with have three times as many foreclosed properties now as they did two years ago.

To break into this field, seek out bank managers and angle for business doing Broker’s Price Opinions. These quickie appraisals are needed by banks to verify the accuracy of full appraisals, for portfolio valuation purposes, to simply check if a home is occupied, and to price REO properties for sale. You’re not likely to make much doing the BPOs–some brokers do them for free–but they will help build your bank contacts.

9. Teaching: If you have any experience buying foreclosure property, now’s the time to leverage that knowledge by creating courses, e-books or webinars that would-be investors can buy to learn about the foreclosure market.

Real estate investor Cook also sells books and tapes and holds multiday teaching events that cost nearly $1,500 to attend. He says he’s seen many new players jumping in to take advantage of public interest in foreclosures and other real estate opportunities. Says Cook, “Many of the people I’ve taught now have courses.”

10. Home Staging: Barb Schwarz, CEO of StagedHomes.com and founder of the International Association of Home Staging Professionals, says a down market means more business for home stagers, who dress up homes to help buyers imagine themselves living in them. She says home staging is often home based and appeals to people with a flair for interior design. And it’s a low-cost business for stagers who primarily work with the furniture that clients already have on hand. Schwarz says a typical new member sees business double each year for the first several years as word spreads about the advantages of home staging (Association research shows that staged homes sell five times faster than homes that aren’t staged).

In the Sacramento, California, market, half the homes for sale in March 2008 were foreclosures, says Jennie Norris, 39, owner of We Stage Sacramento, which has a team of seven accredited staging professionals. In this challenging market, homeowners competing with foreclosure prices are turning to home staging to help their homes stand out and sell faster, Norris says.
Norris is seeing strong demand to stage vacant homes, which often seem forlorn and unappealing to buyers. Her company recently staged a dated but spacious ’70s-era home that sold in four days for nearly $1.5 million. “The staging really helped showcase the rooms and highlight the features, while letting a buyer see how to live in a dated house with updated décor,” she says. This quick sale led the owner of another long-vacant ’70s home in the same neighborhood to enlist Norris’ services.

As foreclosures are sold to investors, Norris is expecting another boost to business as the investors ready those homes for resale. We Stage Sacramento earned $250,000 in revenue last year.

No matter what your background or interests, the real estate downturn offers a host of business opportunities. Rick Sharga of RealtyTrac says he knows of one bank that foreclosed on 2,000 properties in 2006–and 21,000 in 2007. He adds, “I’m sure there are more niche businesses on a local level I’m not even thinking of.”

Seattle writer Carol Tice reports on business, finance and social issues for The Seattle Times, Seattle Magazine and other leading publications.