Last year, Lombardo Homes of Washington, Mich., was among the few builders to report revenue and closings gains over the previous year. It cracked into the Builder 100 list in 2009, even though permits in Greater Detroit fell to 1,000, down from 18,000 during the peak of the housing boom.
Part of the secret to Lombardo Homes’ success has been its relationship with Novi, Mich.–based Marketplace Homes, an eight-year-old business that works on behalf of its preferred builder network to get home buying prospects into a new house by offering them guaranteed monthly lease payments on their old homes for up to six years.
Anthony Lombardo, Lombardo Homes’ president, estimates that 35 percent of his buyers are participating in this program. Another local builder, Detroit-based Hunter Pasteur Homes, has half of its buyers receiving lease payments from Marketplace Homes. “I’d be out of business without this,” says owner Randy Wertheimer.
Marketplace Homes is helping builders sell between 15 and 20 homes per month, says its co-owner Mike Kalis. It did about 100 sales in 2009 and expects to do at least 200 this year.
Marketplace Homes has refined its operational processes to the point where it’s ready to expand to other markets. Its goal, says Kalis, is to be in 12 markets by the end of this year, and it’s looking to move “into the toughest markets,” says Kalis, where home prices have fallen the steepest, such as in the Midwest, Florida, Las Vegas, and Phoenix.
A former Pulte employee, Kalis says Marketplace’s “buy now, sell later” strategy targets the 25 percent of buyers who want to purchase a new home but can’t sell their old one. In Detroit, there are 22,000 families with children, whose household incomes range from $75,000 to $200,000, and whose mortgages are upside down. “A huge segment of them have stopped looking because they can’t find a buyer. But if we can get just a couple hundred of these, I have a very good business.”
Marketplace’s program works like this: It gives owners a guaranteed monthly lease amount, based on current market rates, even if it doesn’t sell or rent their houses. (Kalis says a house will rent within 30 to 60 days of being listed, “as long as we’ve set the right price for it.”) While the owner pays the mortgage and property taxes, Marketplace takes care of the house’s upkeep and utility bills. And the company makes money when it rents these properties. But its primary revenue source is from fees it charges builders for its services. Hunter Pasteur generates between 10 and 20 leads per week, and the majority, says Wertheimer, are drawn by the guaranteed lease program his company promotes on its website and in its radio and cable TV ads. He’s paying Marketplace Homes about $20,000 for the sale of a home priced at $300,000, “which is about $8,000, $9,000 more than I’d pay a Realtor.” But, Wertheimer adds, “I would argue that a builder can’t afford not to do this.” In Michigan, there are a lot of young families living in small $120,000 condos on which they owe $100,000 but are now worth $60,000. “We’re providing a solution to them,” Wertheimer says. And with interest rates so low, these owners can move from a 1,000-square-foot condo into a 2,500-square-foot house and pay only $300 to $400 more per month.
Learn more about markets featured in this article: Detroit, MI.