Making money from the sub-prime woes

One man in South Carolina buying and selling real estate foreclosures by the dozen

Yesterday, we blogged about the problems in the sub-prime mortgage market and the effect those problems would have on home prices. This is not good news for homeowners currently thinking of selling their properties. They're probably not going to get the price they hoped they would.

Today's Wall Street Journal has an article about one man, James Odell Barnes, who buys foreclosures from lenders eager to unload their delinquent properties. In a recent acquisition, he bought 12 homes for $35,000. We're not talking Manhattan real estate here. Barnes and his 40 or so investors then turn around and find buyers for the houses. They don't fix them up preferring to unload them as quickly as possible. The buyers repay the loans over 15 years. The interest rate charged is 12 percent with monthly payments slightly less than what they'd pay for rental accommodation. Steep for anyone with good credit, but for those that can't get a mortgage, this is their only way to buy a home.

How does Barnes make money?

For every deal he passes on to his investors, he receives $1,000 for his trouble. Last year he referred over 1,400 homes earning more than $1 million in fees. For some, there's a silver lining in this sub-prime meltdown.
Posted by stumpy on May 15,2008 at 3:02 AM

At one point in time, I was one of those low income people with very poor credit.  I had checked into purchasing a home through a no down payment program.  Due to my credit score and due to the fact that I didn't have 20% to put down on a home I was offered an 11% interest rate.  This obviously is lower than what Mr. Barnes is offering.  However, what isn't mentioned in those ads for $0 down is that with very poor credit and $0 down you also have to pay primary mortgage insurance.  This primary mortgage insurance can be hundreds of dollars additionally per month that has to be payed until you raise your score and can refinance.  Even at 12% I think Mr. Barnes program is still probably a better deal.  Another thing to keep in mind is that due to the lower monthly payment, low income families just might be able to lower outstanding credit debt and maybe raise their score so they can refi and lower the interest rate on the mortgage.

Posted by darla on July 28,2007 at 4:10 PM

I live in illinois and i would like to relocate. I wish to contact Mr. Barnes to buy a home for low monthly payments. If anyone has any information for me please email me asap. My email is: Thanks for any info you can give.

Posted by Michael on June 1,2007 at 5:39 AM

It's not Mr. Barnes that you need to contact if you want to buy. It's the investor group that is selling the houses that you need to make contact with! However, I suspect there are other groups out there who could be selling foreclosures in your area. While I don't know a lot about the Buffalo market, I do know that Buffalo is "remaking" itself right now, and could be on the way back from a big slump. It's a good time to get into this market, before it starts to heat up.

Posted by Jeannette Ajaz on June 1,2007 at 12:57 AM

I would like a house in Buffalo, NY.  We have a large family.  I would like to contact Mr Barnes.  He may be the blessing from  God.  If anyone has contact information please email me

Posted by Michael on April 28,2007 at 6:35 AM

While Mr. Barnes may help to get houses that have gone through foreclosure back on the market, he's certainly not some kind of "white knight". At a 12 percent interest rate on these loans, when the prime rate is hovering around 6 percent, I'd have to say that this certainly isn't charity. I wonder how much the homes are sold for over the cost that Barnes pays?

Posted by Rabiya on April 27,2007 at 12:22 PM

I applaude Mr. Barnes...for allowing buyers, who would otherwise be forced to forego the American Dream of homeownership, a chance.  He also is providing them a unique opportunity to save on their taxes through home mortgage deductions which as a renter they are not entitled to.  

It's a win-win situation for all.  If the buyer is paying rent comparable to the amount of the mortgage...then where's the harm.  It also allows the buyer to improve their credit rating by paying on time.

The one problem I have it the title issue.  I wonder how long before the buyer receives the title after making on-time payments.  

Posted by Stuart on March 14,2007 at 2:03 PM
12 houses for $35,000? I'd like just to have $35,000 just to put toward a house.
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