Sue Ogroki  /  AP
Michael Reiser and his fiancee, Trisha Allen, check the exterior of a HUD house they planned to bid on, in Tulsa, Okla. Reiser and Allen invest in real estate, most of which they convert to rental property.
updated 7/24/2005 4:57:04 PM ET 2005-07-24T20:57:04

The Pink House does not look like a family establishment.

Outside, the battered house on the scruffy north side of Tulsa is the color of Pepto Bismol — hence the name.

Inside, walls have been painted a nauseating turquoise-and-magenta pattern. There is a bar where the dining room would be. In the corner of one cavernous room is a tiny, carpeted stage.

“I’ve always wanted to be a strip club owner,” investor Trisha Allen quipped as she strolled around the place.

Yet when she surveyed the overgrown yard and grimy commercial kitchen, Allen saw it as the charming yet affordable future abode for a big Midwestern clan.

“This is a money maker,” said Kent Hildebrand, her real estate agent.

In the past eight months, the 30-year-old computer technician has turned less than $20,000 into an impressive little collection of rental properties. The Pink House is her most recent acquisition. But her eyes are on a bigger prize — a million-dollar commercial property that would produce sufficient income to enable her to quit her job dealing with “PCs and the people who break them.”

In this era of skyrocketing prices and rock-bottom interest rates, many people share Allen’s dream. Late-night infomercials babble about big payoffs with no money down. Slick self-help gurus host $3,000 seminars where they promise to reveal “secrets” that can turn anybody — even you — into a real estate tycoon. In especially hot markets such as Miami and San Diego, people buy and sell condos as if they were trading tchotchkes on eBay.

Any economist will tell you this is nuts.

“Housing turnover is now reaching Ponzi-like proportions,” warns Stephen S. Roach, chief economist for Morgan Stanley.

Real estate mania is this decade’s version of the irrational exuberance that pushed Internet stocks to ridiculous heights during the last decade, only to come crashing down at the beginning of this one. And just as many investors wish they’d never heard of or XO Communications, a lot of would-be real estate tycoons may soon rue the day they started buying property.

But Allen isn’t likely to be one of them. She lives and invests outside the bubble, where home values have climbed much more modestly over the past few years and landlords can still expect to collect enough rent to cover their costs. In a world gone mad for metes and bounds, she is an example of what it takes to succeed in real estate reality — hard work, business acumen and a high tolerance for the odor of mildew.

Home prices in Tulsa have risen a modest 2.8 percent over the past three years, a tiny fraction of the appreciation in bigger cities such as Los Angeles (84.9 percent), New York (53.3 percent) and even Milwaukee (31.9 percent).

There are some signs of froth on the south side of town, where executive McMansions are sprouting the way drilling rigs did back in the 1920s, when Tulsa was the “Oil Capital of the World.”

But Allen wants nothing to do with granite countertops and double-height foyers — never mind that she can’t afford it. She obsessively scours the real estate listings for rundown properties that are listed below their true value. Then she bargains hard to get the best possible price.

“A lot of it is just recognizing deals where other people don’t see them,” she said.

Take the Pink House. The place immediately stood out when Allen spotted it in the real estate listings — and not just because of the paint job. Here was a 2,300-square-foot house selling for $24,000. That’s incredibly cheap, even for Tulsa.

Allen’s first question: Why?

“Let’s go find out what’s wrong with it,” she said to Hildebrand.

When they pulled up to the house, the two were immediately struck by its extreme pinkness and unsightly steel fire door. But what really grabbed their attention was the neat black lettering on one wall identifying the place as “The Pink House.”

And below that, in fancier script: “Giving Back to the Neighborhood.”

What could it be? A charitable organization? Some kind of sorority?

Those hypotheses crumbled once they stepped inside and beheld the ancient bar, the windowless performance space and the room in the back of the house that had been split up into two bed-sized alcoves with easy access to a rear exit.

But Allen’s primary interest is in the future of the Pink House, not its sordid past. With about $10,000 worth of work, she estimated, it could be remodeled into a five-bedroom house worth $80,000 or more. Hildebrand guessed it could pull in $1,000 a month in rent under the federal government’s Section 8 program, which gives low-income families vouchers that they can use to pay rent on privately owned properties.

After renting them, Allen might be able to flip her houses for a quick buck. But she prefers the steady rental income she gets by hanging onto them.

“She’s probably making a decent return on the rent,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. “When, let’s say, mortgage rates go up, she’ll still have the rent coming in.”

Even so, Allen’s scheme is far from risk-free. She capitalized her venture with a credit card advance, hardly the most economical way to borrow money. And though she has paid off the cash advance and is careful not to mortgage more than 80 percent of each property’s appraised value, a slowdown in the rental market could spell trouble.

Allen has bought most of her properties from what real estate experts call “motivated sellers” — banks that have just foreclosed on the properties and are looking to recover what’s owed them, relatives of people who recently died or moved into nursing homes, investors who are either going broke or getting out of the business because the headaches have become too much.

They aren’t always the easiest people to do business with. One deal was ready to go through when it turned out that the seller owed about $17,000 — more than the price of the house — on a car that had been repossessed. That mess took weeks to sort out. Then, after Allen had signed the closing documents, the woman decided she didn’t want to sell after all.

Allen’s chosen road to riches is paved with soggy carpet, chipped linoleum and cracked foundations. Her typical purchase has usually been neglected for months or years. The appliances are outdated, busted or both. The carpet is shot. The walls need paint, inside and out. The grass is dying.

“And then we turn it into the nicest house on the block,” said Michael Reiser, who is Allen’s fiance and business partner. His 15 years of experience in the residential contracting business are invaluable to their enterprise.

But transforming a house from eyesore to dream home isn’t effortless, either. With the real estate market as hot as it is, contractors take on more business than they can handle. A job that should take weeks stretches into months, delaying the rental income that keeps this enterprise afloat.

So after searching diligently for a good buy, bargaining hard for a good price and waiting patiently for the deal to go through, Allen faces the irksome task of hiring and pestering a contractor to get the job done.

A few weeks ago she and Reiser stopped to check on one of their houses that had been under renovation for almost two months. They wanted to make sure the work was done, or nearly so.

It wasn’t. The house was in the middle of being painted. The carpet had been pulled up, exposing the soggy padding underneath to sunlight for the first time in a long time. The old appliances hadn’t been replaced.

The contractor was nowhere to be seen, but one of his workers — a monosyllabic, paint-spattered young gentleman — was sitting half-asleep on the front porch steps.

Reiser let out a sigh, knowing he would have to make the unpleasant phone call. He usually deals with the contractors and management companies; she handles the bankers and real estate agents. Allen believes the division of labor is vital to their success.

“You have to have a team,” Allen said. “If you try to do everything yourself you’re not going to get much done.”

Especially not if you’re trying to build a real estate empire while holding down a full-time job. Allen and Reiser spend lunch hours visiting prospective purchases. Evenings she sits in front of the computer, scouring real estate listings. On weekends, Reiser paints and does whatever repairs he can handle himself.

It would be nice if you could shell out a few thousand dollars on a weekend seminar and then make a million in real estate. Maybe in these heady times some lucky people do. But in the real world of real estate, that’s not how things usually work.

“Don’t be surprised if it takes a longer than you think it will,” Allen said. “There’s no easy way to the pot of gold at the end of the rainbow.”

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