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When Investing in Foreclosures, Turn-Key Is Key

Tuesday, 27 Sep 2011 | 11:16 AM ET
Texas Cash Cow Investments
CNBC.com
Texas Cash Cow Investments

It was just hitting 105 degrees in Dallas when Phillip Carter herded a group of Australian investors onto a bus and headed out to see some previously foreclosed properties. Cowboy to cowboy, Carter tells them the Dallas market is ripe for profit, as rental demand surges and rents head higher. The difference in his business model is that the cash is ready to flow, immediately.

"We buy foreclosures in bulk from the banks, REO's, and rehab them and sell them with property management," says Carter, who sells his properties complete with renters. "It's a turn-key package that provides cash flow."

Carter is promising 20 percent cash return on most of his investments, and his "Texas Cash Cow Investments" is just the business model his largely foreign clients want.

Texas Foreclosure Cash Cow
CNBC's Diana Olick has the story on foreign investors profiting from the Texas foreclosure market.

Travis Henley is hitting Kansas, Indianapolis, Memphis and Atlanta, ready to put the relative power of his Australian dollar to work against the still-crumbling US housing market. Carter's properties are just what he's looking for.

"We're looking for cash flow and maybe a bit of appreciation as well, but at this stage we're mainly looking at cash flow," says Henley.

Fellow Aussie, Damian Nagus, says the exchange rate alone will offer enough capital appreciation, but he's still looking to hold for a long time.

"The money is patient. I've been investing in Australia for 25 years and own a reasonable amount of property, and so we're here with a ten year horizon," estimates Nagus.

"We view that it's going to be a good five years without much happening, as America tries to get it's way out of where it is now, and in ten years time we will look at where we are and see if we need to sell or just continue to hold."

Texas Cash Cow Investments
CNBC.com
Texas Cash Cow Investments

Nagus and Henley think there may be better cash flow in the Atlanta market, but Carter claims Dallas is the best bet now.

Dallas was not a boom-to-bust market, like Phoenix or Las Vegas, and home prices are down just 3 percent annually, according to the S&P Case Shiller home price index released today. That's better than the top 10 and top 20-city composites.

"Dallas is the first market to take off because we're having the largest population increase in history here," notes Carter. "It's increasing the market in that the inventory is going down very quickly and prices are going up. Rents are going up and appreciation is going up."

Carter would like to see the federal government help investors like himself by loosening up some of the financing guidelines at mortgage giants Fannie Mae and Freddie Mac. His track record and relationships with the big banks have allowed him to make bulk purchases of 30-40 properties at a time, but he'd clearly like to do more.

"The biggest challenge for us right now, honestly, when investors see this opportunity, they think it's too good to be true," admits Carter, a self-proclaimed "opportunist." But he's doing a brisk business, with clients from China, India, Canada and a surprising demand from U.S. baby boomers, wary of the stock market. Carter claims he's the largest company doing this kind of turn-key business.

"I guess it's a cowboy business, kind of like commodities," Carter says as he leads Outback entrepreneurs around his properties. "Instead of doing cattle, we're doing houses."

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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