WASHINGTON – April 18, 2011 – More investors are taking on the risk of flipping homes, despite falling home prices and sluggish real estate markets across the country. But investors say there are still profits to be made in the house flipping business.
Nearly 1 million homes were bought as investment properties in 2010, according to the National Association of Realtors®, and a record number of buyers purchasing properties with cash currently are flooding the market.
Flipping homes for profit is easier in rising markets, but not many markets are reporting increases in home prices, analysts say. In Washington, D.C., Justin Konz of RestorationCapital says his clients are going through four or five properties a month and are making gross profit margins of 35 percent or higher.
Where to find the deals
Flippers mostly are finding their homes through foreclosures auctions, REOs and short sales. They seek homes at rock-bottom prices that will have low fix-up costs, no more than about 5 percent or 10 percent of the purchase price.
In Florida, where investors are finding it more difficult to flip homes because of the drastic drop in prices and high inventories, flippers are targeting inner-city properties that are being sold at steep discounts. For example, some of houses are selling for $30,000 when they once sold for $200,000.
Perry Henderson, a real estate agent and investor in Austin, Texas, says the biggest opportunities in flipping are the “ugly” houses that have lingered on the market or “old houses that somebody’s grandma lived in for 40 years and didn’t do anything to. Now, she’s passed away and her family wants to sell quickly.”
Real estate investor Brian Fuller, who with partners buys and sells more than 200 properties a year in the San Diego area, says he’s drawn to the “biggest eyesore on the block.” He says they then “ turn it into the best-looking house there. We’re helping pull up values in the neighborhood.”
Source: “Vulture Investors Flipping Their Ways to Big Profits,” CNNMoney.com (April 13, 2011)
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Monday, April 18, 2011
FL House Flippers Seek Inner-City Profits
Wednesday, March 10, 2010
When It's Ok to Walk Away From Your Home
No, you shouldn't feel bad about it, and you shouldn't feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family's finances first.
How widespread is this? More than 11 million families are in "negative equity"—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That's a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That's true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.
Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?
It's time for some tough talk.
Stop trying to chase your lost equity. That money is gone. Don't think like the gambler who blows more and more cash trying to win back his losses. That's how a lot of people turn a small loss into a big one.
And do the math. Even if you hope the real estate market is near the bottom—it's possible, but by no means certain—it may still take years to see any meaningful recovery. If you are 25% underwater, your home will have to rise by 33% just to get you back to even.
Is that likely? And over what time period? Even if home prices rose by 5% a year from here, that would still take six years. And during that time you could instead be building fresh savings elsewhere.
A real-estate agent moves a torn "Lender Foreclosure" sign outside a foreclosed home in Reno, Nev., last Monday.
If you are reluctant to give up on "your" home, realize that it isn't "yours." If you are in negative equity, it's the bank's home. You're just renting it. And right now you may be paying way above market rates. You need to be ruthless about your cash flow.
Are you worried about the legal consequences of walking away? Certainly, you should check with a lawyer before doing anything, but the consequences will probably be more limited than you think.
In "non-recourse" states, the mortgage lender may have no right to come after you for any shortfall. They may have no option but to take the home, sell it and eat the loss. According to a survey last year by the Federal Reserve Bank of Richmond, such states include negative-equity hot spots California and Arizona. Even in "recourse" states, lenders may have limited ability to come after you. Often they'd have to jump a lot of legal hurdles, and it's just not worth it for them. They're swamped with cases anyway.
"In my experience, right now they're not really going after anyone," says Richard Nemeth, a bankruptcy attorney in Cleveland. "They just don't have the resources."
If you've taken smart steps to protect your money, you may be safer still. For example, money held in a 401(k), Individual Retirement Account or pension plan is sheltered from creditors.
Sure, a strategic foreclosure may hurt your credit score. But if you're in financial difficulties, it's probably already suffered. And your credit score is not the only thing in life that matters.
Still, when it comes to the idea of walking away from debts, many people are held back by a sense of morality. They feel it's wrong to abandon their obligations. They don't want to be a deadbeat.
Your instincts, while honorable, are leading you astray.
The economy is fundamentally amoral.
Sometimes I think middle-class Americans are the only people who haven't worked this out yet. They're operating with a gallant but completely out-of-date plan of attack—like an old-fashioned cavalry with plumed hats and shining swords charging against machine guns.
Do you think your lenders would be shy about squeezing you for an extra nickel if they thought they could get away with it?
They knew what they were doing when they wrote your loan. Many were guilty of malpractice, but they pocketed good money and they've gotten away with it. And if they thought your loan was "risk free," how come they were charging you so much more than the interest on Treasury bonds?
If you're only a small amount underwater on your mortgage, it's probably the case that you're going to be better off staying put. But if you are deeply underwater, it's a different matter.
Whether we like it or not, walking away from debts is as American as apple pie. Companies file for bankruptcy all the time, and their lenders eat the losses. Executives and investors pocketed millions from the likes of Washington Mutual, Lehman Brothers and Bear Stearns when the going was good. They didn't have to give back one cent of that money when the companies went into bankruptcy.
Limited liability, after all, is one of the main reasons every business from your local dry-cleaner to a major multinational gets incorporated in the first place. They're not shy about protecting themselves if things go wrong. You shouldn't be either.
Thursday, October 8, 2009
Real estate flippers back in South Florida, but this time they could help
Bolstered by swelling foreclosures and bottomed-out prices, investors are returning to the South Florida real estate market, snapping up distressed homes with cash payments for either a quick turnaround or a short-term rent-then-sell investment.
Unlike the speculative flippers during the boom – scourges who unnaturally jacked up prices, spawned reality TV shows and led to the economic crumble – today’s flippers are erudite capitalists who could usher in positive change by buying dilapidated and abandoned homes, patching them up and selling them for a market-bearable price, experts say.
The downside: These cash-in-hand guys are competing with regular folks looking for deals and struggling to find loans.
But Realtors say this whole foreclosure flip phenomenon is not for the faint of heart.
It takes legwork. Homes may carry large HOA or tax liens. Many are stripped of appliances, toilets, countertops – everything but the drywall, and sometimes even that has been plundered.
“Without a doubt, people with opportunistic profit motivations are reentering to purchase properties,” said market analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach. “But this isn’t the group of cocktail sippers who were bragging years ago about buying and flipping. These are real investors.”
Jupiter-based Pudlit Joint Venture incorporated as a limited liability partnership in mid-June and began paying cash for Costco-style home buys.
In August and September, Pudlit purchased 42 Palm Beach County homes, according to the property appraiser’s office. The group’s buys vary from Lake Worth’s D Street to Wellington’s opulent Olympia.
Realtor Robert Littman, who represents Pudlit, said the company is made up of a “couple” of investors who are willing to do the job that banks aren’t – cleaning, re-roofing and replacing air condensers that disappear into the night.
Littman has sold eight homes.
“This is a very difficult job,” Littman said. “You could go down to the courthouse and look at hundreds of properties and then only buy two.”
Foreclosures in Palm Beach County grew substantially in August, with 4,150 receiving a foreclosure filing, a 110 percent increase from the same time the previous year.
St. Lucie County had 1,649 filings in August, up 57 percent from a year ago. Martin County, with 248 foreclosures, was up 8 percent from August 2008.
Curtis Lowe, president of the Realtors Association of St. Lucie, said he’s also seen an increase in investment buys on the Treasure Coast. He had a client “more than happy” to pay the asking price on a flipped home because it was move-in ready.
Another wave of foreclosures is expected to hit Florida in 2010 as unemployed workers struggle with payments.
University of Florida economics Professor David Denslow said out-of-state investors will likely follow.
Actually, they’re already here.
Calabasas, Calif.-based group LE 1 LLC is an investment fund run by real estate investor Paul Elis, who is tiptoeing into the Palm Beach County market.
With a local partner, he paid $125,000 in cash for a four-bedroom home in West Palm Beach in May. Newly remodeled, it’s now on the market for $244,900.
But with few offers, Elis, who says he’s been flipping homes for profit for 40 years, is considering renting the home for a year or two before he sells.
“I know Palm Beach will be potentially rewarding,” Elis said. “This business is not about getting lucky with markets, it’s about skill and technical competence.”
Slowing down the flippers – and that’s not necessarily a bad thing – is the fact that buyers may have trouble getting Federal Housing Administration loans if the home has changed hands within the past 90 days.
To move the glut of houses on the market, the FHA has relaxed its 90-day rule for buyers using federal Neighborhood Stabilization Program Grants, but the policy still aims to prevent the predatory turnarounds and sky-high price increases that made “flip” a four-letter word.
Even today, Elis and his sort are called “vultures” for picking at the bones of the real estate market.
“Some people think of them that way,” said John Thomas, Palm Beach County director of residential appraisal services. “But someone has to clean up this mess.”
Copyright © 2009 The Palm Beach Post, Fla. Distributed by McClatchy-Tribune Information Services.
