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Foreclosure Schooling

A short stint as a landlord whetted Craig Rhodes’ appetite for real estate investing. His first investment purchase — a bank-owned property that netted nearly $100,000 — hooked him as a serial foreclosure investor.

The most recent foreclosure property purchased by North Carolina investor Craig Rhodes is nearly ready to be put back on the market for sale.

"My wife and I sort of got into it by accident," said the North Carolina resident and university professor who has purchased a total of four foreclosure properties in the last two years. "That (first) one went so well it allowed us to do the next one much sooner than we anticipated."

Rhodes’ interest in real estate investing began when he and his wife moved temporarily to Minnesota. They opted to keep their North Carolina home and rent it out during their absence. That experience as a landlord helped Rhodes realize some of the advantages of real estate investing: tax deductions and home price appreciation without the monthly mortgage payment.

So when he and his wife returned to North Carolina, Rhodes decided to take a shot at more intentional investing. A professor friend who had been investing for years gave him one crucial piece of advice: make sure any investment purchase comes with instant equity. That advice led him to sign up for RealtyTrac and pursue foreclosures.

"The first experience, I wasn’t positive what I was doing, it was more of a gamble," he said. "But I didn’t see how you could buy on the regular market and make a profit … The only way you can make sure you have equity going in is to do a foreclosure."

Rhodes closed his first deal in March 2005, about three months after beginning his search, although he made one rookie mistake.

"I actually put an offer in without even talking to my wife," Rhodes admitted. "When she came over and saw it she looked at me as if to say ‘what did you do?’ But it was all cosmetic."

Rhodes was convinced the property was a good buy because he did his homework and made sure he stuck to the instant-equity rule of thumb. He purchased the 2,800-square foot home on two acres of land for $175,000 and was told by an appraiser that it was worth $206,000 as it was — without any renovation.

Rhodes planned to renovate and resell the property. But as the renovations got underway — new flooring, new paint for the entire interior and exterior trim, repaired windows and new appliances — Rhodes said his wife began change her opinion about the home. When all the renovations were finished the property appraised for $271,000, and Rhodes’ wife was officially attached to it.

"Once the repairs were coming together, my wife kept coming over," he said, adding that the couple eventually decided to keep the investment property for themselves and sell the house they were living in at the time.

"We’ve decided that this is probably the last house for us."

Since that initial foray into foreclosure investing, the Rhodes have purchased three more properties, two from foreclosing banks and one directly from a homeowner in default. Because they are both teachers, the couple does most of their investing between May and September. But that may change next school year, when Rhodes’ wife is planning to cut back to part-time status.

"I hope to do at least one, if not two more in this year," he said, noting that he may need to adjust his investment strategy to work with the shifting housing market. "The next two, just looking at the market, I will purchase with the purpose of renting out and then once the market turns around I may sell. It’s just like the stock market, you buy when you can buy low and sell when you can sell high."

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