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

[FromHouseFlipperToBurgerFlipper]

Isn't a house being owned by a flopper a valid reason for offering at least 30% below their wishing price?

Burn em.

[David Raether]

The answer is: who cares?

Flippers deserve everything that happens to them, bad or good.

If they make money, well, they took the risk and earned the reward.

If they lose money, well, they took the risk and earned the loss.

Now... how about if we apply that same principle to investors in Fannie Mae and Freddie Mac stock?

Fair enough?

[Robert in Palm Springs]

This is a bad time for flipping. Flipping was like shooting fish in a barrel a few years ago. Prices were guaranteed to go up with cheap loans, limited supply and motivated buyers. None of those fundamentals are in place now.

Trying to guess a bottom (or top) in any market is difficult. It is better to miss the bottom slightly by seeing a reverse trend firmly in place before committing yourself. That has not happened yet and I think we are still far from the bottom. If these guys get caught, they deserve no more compassion than anyone else caught up in the net of greed.

[aj]

IMHO: We have not reached the bottom. Too many notices of default and too many in the pipeline that have yet to reach the courts. Flipping in any market is a risk but in this situation is probably foolish.

[fezco]

The answer is "A." This well needed correction has just begun. Already two 'flippers' on our block switched from selling to leasing their POS houses they 'restored.'

[Nick]

Good, glad to see it. This has several benefits I can see, and no particular downsides.

1. Buying on the low end lowers median price, thus encouraging the speed of the housing correction.
2. This helps clear REO inventory, helping banks process more foreclosures and realize their losses, speeding the eventual stability everyone wants.
3. Offloading REO's from banks to individual flippers spreads risk around, and possibly offloads some bank losses.
4. Flippers occasionally do professional, extensive fixing of houses, which improves neighborhoods.
5. Flippers will maintain properties until they are sold, increasing neighborhood safety.
6. Flippers provide an additional liable party for tax and maintenance charges, increasing the chances they will be paid.
7 Their buying and selling generates revenue for other people in the RE industry, which will keep some people employed.

Although I wouldn't want to be flipping in this housing market, I don't think there's anything wrong with people trying to flip now, especially if they have substantial personal and/or business financial resources. The few who are really good at it will probably even continue to make money, but even the ones who don't will have positive effects. Bring em back. :)

[I.E. SUUUCKS!!]

***Note to my neighbor in Fontana******

LOLOLOL...... How does it feel to know, that the neighbor to your LEFT, just paid $250K (LESS) for the exact floor plan/ home!!
P.S. CAN YOU GET YOUR NON-REGISTERED CARS OFF OF YOUR $500K, MANACURED FRONT LAWN!!
THANKS!!

[Cal]

You can flip in any market. The key is buying right (significantly under market value) and in solid neighborhoods. What was happening during the boom is that that maxim was no longer true, you could buy anything and make money.

[LA]

Very risky business. And these flippers are selling to other flippers who're selling to...?

I have nothing against fix-and-flippers, people who add value to the property before reselling. And I appreciate flippers who sell with creative but fair terms to prospective homeowners who might otherwise have trouble qualifying, as they are providing a service.

But flipping to flippers for quick bucks - adding no value, and driving up prices for the families who want and need homes - that takes a certain kind of callousness.

What goes around really does come around.

[IToldu2CashOut]

I wish these people had a stock for their business. I would short it in an instant.

[anonymous]

The answer is a. The solution is simple. Don't loan money to these people. They're the ones that caused a large portion of the foreclosures.
If they aren't going to have it as their primary residence, make them pay cash for it. Leave the mortgage money for people who want to live there.
That way, they'll have to quit spending money THEY DON'T HAVE, and expect our tax dollars to bail them out.

[CD]

Peter, check out Ocrenters,- Tracking Shadow REOs-
Follow to Piggington's reader Running Bear. Jim the realtor
also has a good one. The best is yet to come people.......

[Cal]

In the DQ release it said "non-owner occupied buying activity is low"

Investors aren't really active in this market. Both financing and pricing are working against them I imagine.

[shockg]

"That's if you don't have moral dilemmas with house-flipping."

Morals don't exist on this blog and many of the angry renters here have flipped properties before. There will always be opportunities to flip. You just need to be selective.

[shockg]

PUG, Flippers are greedy and that covers most here who have flipped in the past.

[Doug in Toronto]

I have no objections to people flipping houses, provided they're using their own funds, and not OPM financing (Other People's Money). After all, OPM is a major contributing factor in all this. And I still don't understand why people think a coat of paint and some finish carpentry makes a price rise of up to $100K or more reasonable. I'm also willing to bet that many of these flippers are in financial distress themselves - the difference is that they won't admit it. Even to themselves. The next wave could be the flipper foreclosures.

Peter: Any info on flippers who've had their flips foreclosed?

[LeftLA]

Aaron: Moral dilemma? Are you nuts? You buy a product at one price. Improve it. Then resell it at a profit. That's smart business.

[anonymous]

Doug in Toronto:

In Las Vegas, 65 precent of the foreclosures have NOT been owner occupied.

[dunno]

Take a look at their site www.farbelowmarket.com and count 'em... 8 exclamation points!!!!!

WOW I AM SOLD! I too want to put tens of thousands of dollars into my bank account!

[Laker]

Doug in Toronto,
I've seen two flippers that actually bought the houses for CASH...then painted, changed the carpet and listed for sale...could not sell for their wishing prices as they over paid themselves to the banks. Step 2, the CASH refinanced out probably 70-80%, and listed the dumps for rent.

so you might see flippers that actually used cash to buy the houses,,,these will not foreclose, they will simply lose their shirts and pants. Literally.

[keith]

There's nothing wrong with flipping, but right now it would seem that the risk/return math would be kinda bad.

[sfvrealestate]

Last laugh has a point. And this article raises questions: where is their money coming from? Even if they started with just cash, they have to be sitting on BOATLOADS of money, even in the IE, to keep this all going every month.

And I know this isn't the sexy part of this conversation, but what do the preliminary title reports (which have to be clear) look like about 3 flips on? And if there are so many flippers out there willing to buy their product, why aren't these flippers getting there first, rather than second. Or third. Hmm, something is rotten in the state of IE...

BTW, I've seen several short sales in Burbank this week. It looks like they were all attempts at flips by amateurs.

[toby]

They're not playing with fire, they're playing with Plutonium. They might not know it yet, but financially, they're already dead.

[mrpopo]

Skipping the quiz entirely, I'd say that regardless of whether it's a good idea or not, any move to maintain/improve foreclosed properties will help the market overall by reducing the total number of vacant and languishing homes that can drag a neighborhoods property values down.

[Cassiopoea]

Looks like they are somehow finding suckers -- a fixer home in the $200K range in INDIO? No thanks.

I think people have just gotten so used to seeing astronomical home prices that this actually seems cheap to them. Kind of like how people are saying gas is getting cheaper because it dropped 20 cents per gallon. Um.... that's still not cheap.