The economy may be flat, but it's boom time for investors who know how to buy houses at fire-sale prices, fix them up and sell or rent them out.

It's also boom time for the companies that can supply those investors with financing when they need it.

"This is an absolutely wonderful market environment to be in," says Frank Sharp, who heads Watershed Renovation Capital, in Alexandria, Virginia.

Sharp's company specializes in funding real estate turnaround investors -- people who know how to acquire distressed properties, mainly houses, and reposition them quickly.

Like another specialized turnaround lender in Houston, Texas -- Coast Realty Capital -- Watershed provides short-term acquisition and rehab financing to investors at so-called "hard money" rates: 12 percent for the first three months, 14 percent for the next three months.

By the end of six months, Sharp told Realty Times in an interview last week, "we expect the investor to be done" with the repairs and upgrades needed to either sell the house at a profit or rent it out and obtain long-term mortgage financing.

Both Watershed and Coast Realty lend up to 70 percent of a property's expected "after repair value," and charge three to five points up front, a portion of which may be refundable when investors pay back the loan within 90 days.

Meanwhile, the biggest corporate player in the residential turnaround real estate field, Dallas-based HomeVestors of America -- best known for its "we buy ugly houses" ads -- is also having a banner year.

Not only are its 230 franchisees doing record volume, but the company has begun accepting "associate franchisees" - investors who can only devote part of their work time to real estate.

Associates pay significantly lower upfront HomeVestor franchise fees -- $12,000 versus $49,500 -- and can operate out of their homes.

Associates and full franchisees invest directly themselves, buying distressed real estate at an average 40 to 50 percent below market value, fixing them up, and either selling or holding them as rentals.

A key feature of the HomeVestor program, according to vice president Jason Killough, is the availability of proprietary, short-term money to acquire, fix up and resell houses.

But HomeVestors doesn't just give that money away: It charges a hefty 14 and three quarters percent for the first six months -- and expects most franchisees and associates to get the job done by that deadline.

Short-term turnarounds are the norm, said Killough, because "our objective is to move that house" -- at a quick profit to everyone involved.

Published: November 7, 2008

Use of this article without permission is a violation of federal copyright laws.

Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.