They're back: Return of the flippers (seriously)

They're baaaaaack. Flippers. Flipping houses, again. This time flipping foreclosed houses in the Inland Empire. Pay attention, there will be a quiz at the end of this item.

From Peter Hong's story in this morning's L.A. Times: "Low prices are luring both first-time buyers and full-time real estate investors such as Kurtis and Cindy Squyres of La Quinta.

"The couple have been buying two to four houses a month, most of them foreclosures in the Coachella Valley and Inland Empire. They look for the cheapest properties they can find, aiming to buy and quickly resell for a modest profit of perhaps $10,000.

"'That's the new market,' Kurtis Squyres said of foreclosures, which made up 62% of all home sales in Riverside County last month. ... After buying a property, the couple try to unload it as soon as they can to investors they court on their website, FarBelowMarket.com. Those buyers typically try to flip the homes for a quick profit too."

OK, here's your quiz. Median sales prices in the Inland Empire are falling rapidly -- down 31% over the past year in Riverside County, and 34% in San Bernardino. Rapidly falling prices make this ...

   a) A bad time to flip houses -- prices are falling and you risk getting stuck.
   b) A great time to flip houses -- prices are near bottom and now is the time to buy.

Posted by Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo credit: L.A. Times.

Comments

[Dan]

This is America, so I hope they stay honest and make a boat-load of money!

[Peter Hong]

I'll kkick off the discussion. The people I wrote about aren't the sort of flippers who used to be (still are?) featured on various television shows. Because the market is not rising, most houses can't be resold anytime soon at a profit. They look very hard for the very cheapest among the REOs and other houses for sale, then flip them for a relatively small profit. Basically, they find one or two prospects out of hundreds of listings, usually houses listed too low or ones with some damage.

[NevadaGal]

The answer is "A", Peter!

I guess they didn't learn the first time! Is this TLC/HGTV's fault or just a twisted mentality in society today?

[sheila]

seems to me like the answer to your question could have been found in the article if Mr. Hong had bothered to ask investors like the Squyres how resales were going. 90% of people here would be guessing, or answering based on their personal agenda, but someone who is actually doing it might give us facts...

[It All Happens on the Margin]

If this goes beyond anecdote, it serves as proof positive this is not the bottom, and that sales activity is distorted. There is no recovery in the IE... yet.

[Aaron]

Good time to flip. If you price it right, homes will still move, and if you buy it even lower, you can still turn a profit. That's if you don't have moral dilemmas with house-flipping.

[Ya Sure You Betcha]

Not so fast --and not a good idea. But hey isn't that how the mess started--speculators.

La Quinta is a nice place but.....

[Jeff]

Let me think.....uhm.... "a"! Around the corner from me someone bought a beat up old house just past market peak in early 2007 in order to flip. I met the nice family, trying to get all the uncles and cousins to pitch in on this investment project -- never sold. Then it went as a rental for a year. Then I just noticed it's listed as FSBO -- but still 100K over what he bought it for at peak price! There's always hope in capitalism and crazy real estate that there's someone else more idiotic out there then you that you can dump your product on for a profit....

[dclogang]

I think if we had a law like this passed

http://www.spokesmanreview.com/breaking/
story.asp?ID=15096

in addition to fraud in the mortgage industry it would have helped to reduce the skyrocketing prices of houses.

Think about it. Just about every listing I saw during the boom, had this in the description, "new counter tops","new Central air", "new floor" blah blah blah..

Oh, and my answer is A. REALLY bad time to flip houses because the amount you put into will be lost by the time it sells. what's the current value depreciatin per week now? $3000 to $5000? Y I K E S. I think it's CRAZY to buy anything right now.

My wife and I are desperate to get into a house right now. (we are out of room in our townhome because we have a 2 1/2 year old) That's why we've decided to look for a house to R E N T. But we are going to make sure the house we rent isn't at risk of going into default!

[Laker]

Answer is A.

and here is proof:
1) 22603 Clarendon St Woodland Hills, CA 91367. Flipper bought at REDC auction for $672,000, painted that place and put on the market for about $800,000, then reduced it, could not sell, now begging to find a sucker that will rent it....

2) 5806 Laramie Ave Woodland Hills CA 91367. Flipper bought REO from bank for $575,000, painted the walls and changed the carpets. He listed for $752,950, then started to reduce price down to $675,000. No offers, no bids. He now looking for a sucker to lease the place....

So, if those flippers Kurtis and Cindy Squyres are making any money flipping, this either not be legit, or they are great at finding real dumb suckers to buy in the San Berdo, IE area and pay top dollar...
However, if they only looking to make $10,000 per, that might be doable, have four of these per month...not a bad income stream. In any case, you still need to find the naive, uneducated buyer...I mean what, buyer don't know the prices...When you place a bid/offer to buy a house, the minimum you can do is to check public records and see that the house just got flipped....and the seller is trying to make a buck on you....

[TC]

WE ARE ALL GOING TO BE RICH!!!!!!

I chose a

[LeftLA]

B. Definitely. Smart investors are making money now. The profits will increase as we hit bottom, but there's plenty of money to be made now. You have to be smart and do your due diligence. But this is what separates the real investors from the wannabes.

And to the naysayers... that's why you'll never make money in real estate. Enjoy life in the herd.

[Nelcisco]

The difference between flipping now and during the bubble is the ability for the buyer that the flipper is trying to sell to can't get financed as easy as before.

So in the wake of IndyMac and now the bailout of Fannie and Freddie, be carefull in this market, you could be stuck with property you cannot sell.

[jaded]

why would someone buy a house from a flipper when they could buy their own near-new foreclosure for less?

a single ray of light and the flippers come crawling right back out of their dank little holes.

[Matt Bauer]

It is a good time to build a wholesaling business as these two are doing, risky to flip to an end buyer as loans are so hard to get.

[pugtv]

ShockG,

Should we put the flippers in the greed category or should we only assign the greed category to bloggers that want lower home prices?

Should't we at least put up a facade of impartiality if we're going to try to drive prices up through this blog? ... lol

[RentingInLA]

c) A great time to see flippers burn.

They were one of the factors that contributed to inflating this exploding bubble in the first place. It would just be ironic that they themselves get destroyed by the same mess they created. Let them play with fire... go ahead. Here are some more matches...

[Last Laugh]

I don't get it. Aren't loans really hard to get now and banks require at least 10% in RE markets in bad shape (like IE and Riverside). How can they be buying 3 houses in a month? I doubt flippers tie in their own money.

[Sittinginthesidelines]

Foreclosed properties bought at auctions are very risky investments, especially when you hope for such small margin of profit. A potential $10,000 gain can turn into a $20,000 loss very quickly, when you realize that the previous owners poured cement down the toilet as their house was taken away...

[Rich]

Whatever, as long as they're not taking these kinds of risks with mortgages from a bank that should never have lent to them knowing what they're doing. If they're buying in cash with their own or investor money, which is presumably the case for a foreclosure, then it's their right to take their risks. One of the inevitable features of a bubble market is that some buyers and investors are going to jump back in prematurely at the wrong times and price points because they're conditioned to believe the old inflated prices were real values that current prices discount from fairly. Many who bought at big "discounts" two months ago may still be upside down by staggering amounts in two more months...

[BottomFisher]

I think I will copy their idea.....but skip the first part...... with all that messy and risky flipping stuff.....and go right to the real gravy profits selling my over priced books and tapes on how to profit from flipping flippers using other flippers money. Escape manual extra.

[Brian in La Verne]

Let's see . . gas is more expensive than ever, the economy is going down further . .

I want to buy a "bargain" out in the Inland Empire because they're fallen to the prices they were four years ago (which were already inflated then)?

No thanks. This market STILL has a long way to fall.

[Fujshig]

I read this article this morning, and a couple of other things stood out:

1) "Without these buyers, homes would languish even longer on the market, leading to steeper price cuts, [Andrew] Legpage [Dataquick Analyst] said."

I'm not sure if "these buyers include both the flippers and the people who plan to live there, but it seems like a blip on the radar.

2) "They work out of a room in their rented house; they sold their own home in 2005 when they thought the market was about to crash."

"They" referring to Kurtis and Cindy Squyres, the couple that flips the houses.

I guess they're still making money, but between this and the proliferation of ads on the radio pretty much begging people to take more equity out of their quickly devaluing homes, I'd think it's people desperately trying to make the last ounce of money out of a dead market. What kinda shocks me is that they aren't just flipping the houses, they're in turn selling it to other flippers. When will it all end?

[Get.Real]

The previous market peak/bubble, 1990-91, took 4 to 5 years to bottom out (1995-96). This is only year one. The bottom will be 2010 at the earliest, more likely 2011.

The flippers may be a wee bit too early.

[Dougmc]

I vote for risky.

With closing costs on both ends, especially the sell side, I don't see how you can hope to make more than a few dollars for a lot of effort. Maybe this couple is planning not to use a realtor to sell, but going broker-less is toughest in a slow market. If they're planning on a quick turn-around, they won't be able to rent the property, exposing them to carrying costs as well - they're certainly borrowing if they buy a couple of houses a month. Frankly, I'm amazed they can get financing, unless they don't reveal the extent of their other holdings and loans. There's also the disturbing possibility that a lot of recent sales have been to other speculators (excuse me, "investors"), so the market for end-users may be weaker than overall sales suggests. The there's the economy, which isn't particularly great right now, especially in the IE.

The falling knife may have hit the floor, but picking it up without cutting yourself is still tricky.