Beyond Subprime: Reselling Foreclosed Homes
LUKE BURBANK, host:
But what about folks who don't even qualify for sub-prime loans? They're part of something that's known as the sub-sub-prime market, which is precisely where guys like Odell Barnes of Leesville, South Carolina make their living. Today's Wall Street Journal profiled Barnes and his business of buying distressed properties for next to nothing and then selling them to the poorest of the poor. I asked Odell Barnes how it all works.
Mr. ODELL BARNES (Real Estate Buyer/Seller): This type of property, the people that would live there can't buy it. And most investors don't like those neighborhoods. It's a lot of trouble. If you're renting, you have to maintain it. But it works really good if you buy it and you sell it to the people that are living in it and let them maintain it.
What I do is I buy these houses. My people will go to the neighbors and say how much is the rent here? Oh, I'm paying $600 a month. Six hundred, huh? Now at that very time, we determine what we's going to sell the house for. Not what I paid for it. Not what the tax assessment is. We want it less than rent, enough less than rent that they can afford to repair it.
BURBANK: So you go into these neighborhoods and you buy these houses that are not expensive properties in the first place, you know. It could be $30,000, $40,000 for a house. And then do you actually finance them to the people? I mean, you own the house free and clear so then you just set up a payment system.
Mr. BARNES: And we finance it to the people that are going to move in.
BURBANK: Now, what sort of interest do you charge for them to get their loans?
Mr. BARNES: I get 12 percent interest. Now, you know, true. I'm selling houses at four times what I pay for them. But when the loan originated, it was five times what I paid for. So I'm just in the middle.
BURBANK: Have you ever had a chance to speak with any of the people who've got into one of your homes and maybe a few years later, and what do they say to you?
Mr. BARNES: I have gifts at my house that the people have sent me, where they bought a house from me. And I had a house in Buffalo, New York. They sent us this little globe that you turn upside down and the little snow drops on it, and has a little music box in the bottom and a thank you card saying we would have never been able to own a home if it hadn't been for you.
BURBANK: So there are certainly people that you've been able to help with this kind of, low, low, low end of the market that you feel like it's provided a service for folks.
Mr. BARNES: Right. You know, you may not live on that street. I may not live on that street, but people do live on that street. As a general rule, people want to own a piece of property, and if you'll sell it and you make it less than rent in that area so that they can afford it, they'll maintain it.
And, you know, for a poor man - it costs me $10,000 to paint my house, the inside. You take up - I remember the day when I painted my house for five gallons of paint from the dollar store, which is $40, you know? And there are people that can go down and buy their paint at Wal-Mart and paint the inside of their house. They all ain't like us, that we have to have a painting crew to come out and charge us this outrageous price.
BURBANK: Well, Odell Barnes, I just have one last question for you in terms of these cheap houses. Do you have any listings in L.A.?
Mr. BARNES: No. They'll never get nothing in California too much except in the desert.
BURBANK: Let me know if that changes, all right?
Mr. BARNES: Yes, sir. Right now, you're booming areas are the Northeast. The Northeast is real poor right now, but people still have to live there.
BURBANK: Odell Barnes, thank you very much for talking to us today.
Mr. BARNES: No problem. Thank you.
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