|By Marilyn Kalfus, The Orange County Register|
At one point, he nonchalantly pulled an item out of an envelope from one of his clients, an investor who couldn't make it to the auction that morning. The newbies ogled it.
It was a cashier's check for
"There will be millions of dollars of real estate sold here," said
The house-flipping frenzy of the mid-2000s, glamorized on TV reality shows such as "Flip This House" and "Flipping Out," helped drive up prices to unrealistic heights before the housing bubble burst. Since then, however, investors paying cash for distressed properties have been credited with helping the real estate recovery.
Relatively low housing prices and interest rates have fueled a renewed fascination with flipping in the past few years. But competition from large private funds buying homes to rent out and rising prices are changing the market.
"I would say the climate is getting a lot more difficult for the house flipper," said
House flipping increased 19 percent year-over-year across the nation in the first half of the year, a July report from housing data firm RealtyTrac shows. In the six-county
DataQuick defines flipping as buying properties and reselling them within six months.
Investors have various ways to buy available, lower-cost properties. One route is to attend the auctions of homes going into foreclosure.
The auctions typically take place outside a variety of public buildings. In
Homes aren't the only properties on the block; apartment and commercial buildings are part of the mix, too. Postponements are common, as owners in default scramble behind the scenes for loan modifications, try to sell the home at a loss or file for bankruptcy.
When he takes would-be flippers on field trips to the auctions,
You can approach a homeowner long before the foreclosure auction, he tells the students, once the property goes into default, which is the first step in the repossession process.
Or you could buy a delinquent note from the bank at a discount and take over the home loan, he suggests, essentially becoming the lender, and eventually foreclosing on and reselling the property at a profit.
Another idea: Try to buy the home from the lender immediately after the auction in what's technically called the trustee sale, after no one has bid on it and the home has just reverted to the bank.
Or snap up the home from another investor who bid successfully on the property at the auction — an on-the-spot flip. This scenario offers the luxury of an escrow period,
"I like his smart strategy of buying the note," Thompson said.
But that wasn't true. "There's no end to opportunities if you know all the different ways to take advantage of the marketplace," he said.
No matter what the housing market does, he noted, people will always get into trouble with their money. Homeowners run into problems because of a divorce. Some borrowers become alcoholics or gamble away the mortgage.
"There's never an end to people going into foreclosure, for so many different reasons,"
A changing climate
Other investors bypass foreclosure auctions entirely.
But with housing prices and interest rates rising, he said, fewer buyers have materialized: "I have a lot more property today in my inventory that I'm holding than I ever did." That means reselling in six to eight weeks, he said, rather than three to five weeks.
Meltcher said the market has attracted amateurs who cut corners, which creates a negative ripple effect.
"I see a lot of armchair investors coming into the market and not taking the time and energy to do things correctly," he said. "People take a lot of shortcuts. People think it can be done cheaply, that quality doesn't count. They'll put in new carpet and paint and walk away."
When the restoring of a home isn't up to par, he said, it won't appraise for top dollar, which hurts comparable property sales nearby.
Now, Ganem buys homes on the open market and through contacts. He concentrates on homes in
In one of his more successful flips, Ganem recently made a
"You have to make it while you can because there's some lean years," he said, noting 2010 was rough. "Almost every house I bought went down (in price). You throw in some you actually lose money on … and you throw in a lawsuit or two; it's not all glamorous."
At a foreclosure auction in
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