Investors from other states, nations take stock in Youngstown’s low-cost homes

By Don Shilling

The record of out-of-state investors is spotty, local officials said; some buy a home and then abandon it.

Investors from around the world have found a new home for their money: Youngstown rental properties.

Stung by the stock market or lured by cheap real estate — or both — people from other states and countries are buying more and more city homes.

“It’s escalating, and there’s no end in sight,” said George Barrick, an agent with Century 21 Prestige Realty in Canfield.

Roger Forss of New Jersey has bought six Youngstown homes in the past two years and said he will buy more if he finds some in the right condition at the right price.

So far, he’s been happy with his homes, which cost him between $5,000 and $20,000 each.

“You can’t buy a vacant lot for that here,” said Forss, a painting contractor who owns more than 100 rental properties in the Atlantic City area.

He happened upon Youngstown two years ago when a friend bought a Ferndale Avenue home on eBay without even visiting it. The two were traveling back from Detroit, so they stopped in Youngstown to see the house.

Forss saw the house next door was for sale and bought it for $20,000.

For properties cheaper than that, investors have to move much faster because demand is great.

Barrick said multiple bids come in immediately for homes listed under $10,000. Some investors are set up to be notified by e-mail the moment those homes become available.

He recently listed a vacant duplex on Taylor Street for $2,900. The home, which overlooks Interstate 680 on the South Side, seems livable, but has some holes in the walls, musty carpet and a kitchen in need of repair. Barrick estimated about $10,000 would be needed to restore the home to decent condition.

He put the property on a Multiple Listing Service on a Saturday, and by Monday morning he had three bids from out-of-state investors, all offering the asking price.

Barrick said he sells about 120 homes a year that have been repossessed by a lender. About 40 are sold for less than $10,000, and almost all of those are bought by people from out of town.

Getting a home for a few thousand dollars is a powerful attraction, said Rick Mastriana, vice president of Commonwealth Suburban Title in Youngstown.

“The word is out that the housing in Youngstown is some of the most affordable in the United States,” he said.

The Youngstown-Warren area had the second-lowest housing prices in the nation in the fourth quarter of 2008, the National Association of Realtors said.

The Mahoning County Auditor’s Office said records aren’t kept on sales to out-of-state investors, but Mastriana said there has been a dramatic increase in recent years.

Barrick said it began building two years ago and has grown by 60 percent to 70 percent in the past year — right about the time the stock market started dropping.

He said investors have told him that they have pulled their money out of the stock market and are looking for something else to do with it. Investors send him copies of their bank statements as proof that they can back up a cash offer for a house.

“I’ve never seen such large amounts. I’ve seen hundreds of thousands of dollars on bank statements,” he said.

The stagnant real estate market also has led to an increase in out-of-state investors, said Tom D’Amico of D’Amico Agency Realtors, who manages properties for out-of-towners.

Some investors used to buy homes in their own markets, renovate them and sell them for a profit, he said. They can’t find buyers now, however, so they have turned to Youngstown, where they spend money on the homes and then rent them out.

Buyers that he works with come from places such as California, Oregon, Washington, New York, Australia and England.

“We get calls from people all over the world,” D’Amico said.

John Rossetti, a city housing inspector, said he’s heard of landlords from New Zealand, Japan and other countries.

By and large, having out-of-towners put money into city properties has helped Youngstown, Rossetti said. Many parts of the city would be worse off if these landlords hadn’t fixed up homes, he said.

D’Amico said he tells investors to be prepared to put $10,000 to $20,000 into most of the low-cost homes. He said he insists on repairs if someone wants him to manage the home. He will hire local crews, collect rents and take care of maintenance.

“Thank goodness that these people have been pouring money into these properties. Without these investors, we’d have a lot more properties in bad condition,” he said.

Still, the record of out-of-state investors is spotty, local officials said.

Rossetti said some investors buy a home without examining it and then find out that it’s been stripped of its plumbing and electric lines.

“You name it, it’s gone,” he said.

Often, investors see the homes on eBay and the photos look pretty good, he said.

“If you are looking at a 2,500-square-foot house for $3,500 or even $13,000, you say, ‘This isn’t bad,’” Rossetti said.

Once these investors find what they have, however, they just abandon the homes, he said.

Other times, landlords abandon properties because they decide they can’t afford to care for them or they have had some kind of personal crisis, like a death in the family, he said. Finding these people to hold them accountable can be difficult if they are from out of state or another country, he said.

Barrick, the real estate agent, estimated that about half of the low-cost homes he sells to investors are renovated and rented. The rest just sit and fall into more disrepair, he said.

In some cases, Barrick thinks investors are cashing out and walking away from the houses. He said they can obtain an inflated appraisal that’s based on a nearby home that’s in good condition, get a loan based on that appraisal and then use the cash for something other than caring for the home.

Done right, however, investing in local properties can be good business, D’Amico said.

An investor can spend $20,000 to buy and rehab a house and then rent it for between $400 and $600 a month, he said. Within five years, the investor can recoup the original money spent and have a steady source of income.

D’Amico stresses to out-of-towners not to expect the house to appreciate in price, however.

Barrick said that the increased interest in Youngstown has created more competition for local investors.

Out-of-towners are willing to bid the asking price, while local investors want to bargain, he said.

Most of the competition, however, has come for the cheapest homes, so the local investors are focusing on the more expensive ones in areas that are regarded as more safe and as having better schools, he said.

“The out-of-towners don’t really care about that,” he said.

Another growing trend is for investors to skip the local agents, he said. More investors are sending direct mail to people in certain neighborhoods, offering cash for their house.

Some people take the offers even though they may be much less than their house is worth, Barrick said. The offers can be attractive to an elderly person who is afraid of the sales process or younger buyers who are behind on their mortgage and may be otherwise faced with foreclosure, he said.

The most recent trend is for out-of-towners to make unsolicited offers for vacant land in the city, he said. In the past few weeks, people have been calling him with offers of between $100 and $300 for vacant lots, even some that are in high-crime areas.

Barrick said he asks them about their interest and doesn’t get a good answer. He wonders if people are betting on a renaissance of the city under President Barack Obama.

“I don’t know if it’s because of rumors they’ve been hearing about the city or what. We’ve been meeting around the water cooler and asking what’s happening,” he said.

shilling@vindy.com