Monday, March 22, 2010

Flipping article

Here's a pretty good article from the Press Enterprise on flipping.

The number of houses purchased by investors at these auctions, the last step in the foreclosure process, has more than tripled in California in 12 months, from 900 in January 2009, to 3,688 in January this year.

"We have on average of three to four times as many properties sold at trustee auctions now as at the peak reached in the 1990s," O'Toole said.

Bruce Norris, a longtime Riverside real estate investor and consultant who warned other investors early on that the real estate market was about to tank, said the deluge of houses hitting the foreclosure auctions and the numbers of buyers chasing them are far beyond what he had expected. He recalled that a year ago it was common for just a handful of investors to turn out to hear the trustee's auctioneer reel off the addresses of houses for sale and sometimes the auctioneer would speak to an empty courtyard, he said.

Norris said risk is inherent in buying houses that are sold at auction "as is" with no title insurance or warranties and, often, with occupants who must be evicted. Buyers have no protection. They don't even have a right to inspect the houses for which they must pay cash. And after they make a winning bid, they cannot back out or demand a refund.

Success at the auctions depends on homework. In choosing among scores of houses scheduled for sale, it's up to bidders to review comparable sales, do a title search to find out if there are unpaid taxes and other liens and visit the properties. Getting inside a house to determine if it has been stripped of appliances or requires other major repairs can be impossible.

"Every month someone walks away thinking they have a deal -- and they have lost a quarter of a million dollars," Norris said.

Jenny Wang, part of a family business in Murrieta that has bought houses at foreclosure auctions for 20 years, said she feels sorry for beginners like the one she recently saw at auction who paid more than $140,000 for a house in Menifee that Wang knew had burned to the ground.

Newcomers cannot expect a helping hand from the veterans, who are fiercely competitive with one another and irritated by novices who tend to bid up prices beyond what makes financial sense, said Norris.


Todd said...

I'm getting a bit frustrated with the flips that I'm seeing lately.

This place was on the market for several months last year for $400k if I remember correctly and then listing disappeared. It was just listed again but for $449,950 now and I see it sold for $347,900 on 2/17/2010.

I never once saw the price drop below the $400k so I am guessing it was taken back by the bank and sold to someone who is now trying to flip it for $100k more than they paid for it. How are these flippers getting their hands on these places? Is it at the court house auctions or what? I'd probably pay the $347,900 for it but not the $449,950 they want now.

golfer_X said...

It probably was sold to a flipper at the trustee sale. New paint, carpet, some lipstick and list it $100k over purchase, it's the new flippers MO. But backing out improvements, taxes, fees/commissions and, holding costs they will need to get $50k over purchase price just to break even.

Todd said...

I was assuming that was the case. It's interesting that there are no photos of the interior on this one. I do remember this house having a darker exterior color scheme when I first saw it last year and it appeared to be in good shape.

I like this particular neighborhood so I notice when something pops up here. These places were selling in mid $200k range when they were built during the 1990s and probably started breaking the $300k mark around 2001 or so. The listings I saw last year had them (what few thre were) in the upper $300k to low $400k range but the last few are now listed at $449k all the way up to $520k. Good luck with that.

Todd said...

Here is another one that amazes me:

This is down the street from where I currently live. This house is part of one of what originally was one the cheaper neighborhoods in the area when it was built back in the 1970s. It's sitting on a busy street just north of a busy freeway. Surrounding neighborhoods are much nicer and don't appear to be so cheap and cookie cutter looking.

Someone bought the place 12/29/09 for $268,100 and then listed it 1/14/10 for $369,900. The pictures show the usual new beige paint, beige carpet, and cheap appliances installed by a flipper. It doesn't appear that any landscaping was done other than mowing the lawn (and there appears to be dead grass in the back yard in the photos). I noticed cars in the driveway recently so I had to see what it sold for. Apparently it went for $400k which really makes no sense to me.

This smaller single story in the same neighborhood went for $285k last May:

Are people really this desperate for a house that they are starting bidding wars on cracker boxes in less than desirable areas again?