Where are the best opportunities to buy houses at below market prices, fix them up and sell them at a substantial profit?

HomeVestors -- whose 230 franchisees in 35 states have bought and turned around more than 35,000 houses during the past 12 years -- has just come out with its top ten list for the second quarter of 2008.

Four are in Texas (Dallas, Houston, Fort Worth and San Antonio), along with Denver, Colorado, Charlotte, North Carolina, St. Louis, Missouri, Milwaukee, Wisconsin, and Chicago, Illinois and Kansas City, Kansas.

The rankings were based on the number of houses HomeVestor franchisees were able to buy and finance between the beginning of April and the end of June in dozens of markets around the country.

The HomeVestor formula emphasizes buying distressed properties well below market value, meaning houses that need to be sold quickly because of divorce, job loss, illness, death or impending foreclosure, and then renovating them and quickly reselling to rental home investors or first-time buyers.

Mark Hagen, a vice president of HomeVestors, said the top markets share certain common characteristics. They all have:

• Moderate home prices relative to the national average, and never participated in the wild inflationary spirals of the boom years….or the rapid deflation after 2006.

• Solid local economies, producing new jobs, even in the face of a national slowdown.

• Strong local demand for both single family rental units and "starter" homes for renters looking to buy.

• Prevailing rent levels strong enough to produce positive cash flows for investors.

"We call them rational markets," said Hagen. "Real estate fundamentals make sense in these areas."

Statistical data from the federal agency that monitors local housing markets backs up Hagen's point on prices in the top investor markets. For example, Dallas, number one on the list, saw average price appreciation between the first quarter of 2007 and the first quarter of this year of 3.8 percent. That compares with double-digit declines in once-booming California, Florida and parts of the Northeast.

Between 2003 and 2008, cumulative appreciation in Dallas was just 16.5 percent. Houston, Dallas, Atlanta, Fort Worth and the others were all slow but steady gainers, and -- most importantly -- they continue to pump out steady gains in the midst of a national housing downturn.

Published: July 25, 2008

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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.