Thomas Allen bought this home in Capitol Heights, Md., when it was vacant and in poor condition. He hired a contractor to rehab the home and now it is on the market for rent. (Michael S. Williamson/The Washington Post)
Ash Sirazul knew he had made a mistake as soon as he raised his hand.
A few feet away, the auctioneer acknowledged his bid. “Ninety seven thousand. Any advance?”
The price was too high for the vacant Temple Hills townhouse Sirazul was standing in front of, along with several dozen other eager bidders.
Nearly all of them were speculators who have been flocking to Prince George’s County to scoop up cheap houses in neighborhoods devastated by foreclosures.
The county has become the region’s leading magnet for investors, who last year accounted for a third of all home sales, more than in the District or any other Washington suburb, including once foreclosure-ridden Prince William County. The arrival of house flippers and aspiring landlords is an encouraging sign for Prince George’s, where more than half of homeowners still owe more than their houses are worth and where hundreds of foreclosed houses still sit vacant. They have helped fuel a badly needed rebound in Prince George’s home prices, which are up almost 9 percent compared with the same time a year ago, RealEstate Business Intelligence reports.
The house in Temple Hills attracted all sorts of bargain hunters: a tall guy in a suit, a mother and daughter, a pair of grizzled-looking contractors — and a hip dresser with a beard and aviator sunglasses, who showed up in a black Mercedes. Some were veterans rebuilding fortunes lost in the housing bust. Others had never attended an auction.
Bidding started at $20,000 and quickly soared past $50,000. Once the price blew past $80,000, it was no longer worth the cost of renovations for Sirazul, 37, a former communications designer who has been rehabbing and reselling houses in Fairfax and Arlington for the past four years. With prices soaring there, Sirazul had been trying for weeks to find a house in Prince George’s. Eagerness got the better of him.
“Ninety seven thousand. Make it ninety eight!” the auctioneer said.
Sirazul silently prayed for a higher bid: Let me out of this.
No one budged. Then a guy in a gray sweat jacket muttered, “Five hundred.”
“Ninety seven thousand five hundred!” the auctioneer boomed.
Sirazul grinned and held up crossed fingers as he joked with a couple of other speculators about his narrow escape. Then everyone fanned out into the parking lot. The next auction, at a house in Forestville, was starting in 20 minutes.
The caravan of investors marks the flip side of a foreclosure crisis that lingered in Prince George’s longer than any other Washington suburb. For the past few years, homeowners there have watched with dismay as prices climbed ever higher in surrounding areas. In certain parts of the region, such as the District and Arlington, multiple bids are the norm and prices are close to boom-time peaks. The county’s outlier status is now a draw for investors.
“More people are getting into the game,” declared Jesse Marks, a real estate broker in Upper Marlboro, at a recent gathering of real estate investors. “Housing is back. And what happens when housing comes back? Everybody thinks they can do this.”
The free-for-all in Prince George’s mirrors the experience in Prince William, the region’s other major epicenter for foreclosures. After home prices there bottomed out in early 2009, investors immediately poured in, snatching up single-family homes for as little as $80,000. Home prices have since increased by more than 30 percent.
“Investors helped Prince William turn around pretty quickly,” said Lisa Sturtevant, deputy director of George Mason’s Center for Regional Analysis. “I would imagine they will have a similar effect in Prince George’s.”
Some speculators grouse that Prince William is no longer the bargain hunter’s paradise that it was four years ago.
In Manassas, for instance, cash sales, which serve as a gauge for investor activity, accounted for 28 percent of home sales in 2009. Last year, they accounted for 19.8 percent, data from RealEstate Business Intelligence shows.
Some investors have moved over to Prince George’s to try to cash in on a similar — and also temporary — set of market conditions. Since 2010, cash sales have been on the rise and have accounted for 30 percent of home sales. By comparison, last year, 14.5 percent of home sales in Arlington were cash ones. In Montgomery, that figure was 18.7 percent.
Flipping has had a resurgence in Prince George’s. Just a couple of years ago, rehabbers had trouble getting financing, because lenders didn’t want to sink money into properties that were likely to sit for months, waiting for a buyer, said Tom Zeeb, who runs Traction Real Estate Investors Association in the District.
Now that buyers are back, flippers have no problem unloading homes. Only now, many of them are choosing not to resell, and opting instead to hold onto the properties and rent them out. Absentee landlords who lack a strong connection to a community have been known to create problems every bit as serious as empty properties in foreclosure.
But the incentive to become a landlord has never been stronger, said Sherman Ragland, a real estate investment guru based in Upper Marlboro.
As the housing market collapsed, former and would-be homeowners flooded the rental market, pushing up rental rates, even as home prices continued to fall in Prince George’s by as much as 50 percent.
The low buying costs and high rents have created a sweet spot for newcomers to the county’s house-renting business, such as Thomas Allen, 73, of the District.
Allen, a histology technician, has dabbled in real estate for years but only recently finished his first rehab on a house in Capitol Heights that he plans to rent out. He sees real estate as a way to shore up his retirement savings.
Over the past year, he has made more than 70 offers on single-family homes with five-
figure asking prices. He got turned down constantly for low-balling. He landed the Capitol Heights property through another member of the real estate investment club he joined a year ago.
“I’m not really sure what makes me enjoy real estate,” Allen said, “but I do.”
The disparity between home prices and rental rates won’t last forever, Ragland said. The glut of foreclosures will eventually dissipate, and inventory will return to more normal levels. Home prices will rise and profit margins will shrink. The question is: How long will that process take?
Some investors say the window is already starting to close. They see the signs in the number of times their offers get turned down. They see it in the size of the crowds at auctions.
“People are coming like bees,” said Sirazul, who is waiting for the bank to sign off on a purchase of a short-sale house in Hyattsville.
“There are lots of bank-owned properties,” he said. “The problem is they’re all overpriced.”
Speculators haven’t given up yet. The quest for bargains recently lead a half dozen of them to a 99-year-old house in Capitol Heights.
As they toured the inside, a few speculated about the home’s history. There was evidence of a stalled rehab: a new tub and new kitchen cabinets. There was also a succession of doors and small, often windowless rooms.
“A rooming house?” guessed a man on the second floor. Below, someone in the basement said, “It looks like Hannibal Lecter lived here.”
Auctioneer Jon Levinson was waiting outside. Once everyone had reemerged, he began with routine disclaimers. “The property will be sold as is,” he said. “The risk of loss shall be borne by the successful bidder . . .”
The winner, who bid $23,000, turned out to be a speculator from Baltimore who had had a stake in the house before. He was about to get in his pickup truck and drive off when a man in a leather jacket stopped him.
He had a question about the house: “What do you want for it?”