Third in a four-part series
Some real estate investors like to play a high-risk game. It’s called flipping.
“Flipping is very, very high risk,” said Ernie Ochoa, a Century 21 M&M and Associates Realtor based in Merced. “It’s not for the average guy. You can really lose money.”
You also can make money. Flippers typically attempt to buy bargain-priced properties and after some repairs and maintenance, try to sell quickly and pocket a tidy profit. It’s the classic “buy low and sell high.”
A 13-year realty veteran, Ochoa has been working with flippers for the past six months. Much of his work is not done from his office, but from the steps of the local courthouse.
“We’ve been hitting the courthouse steps and picking up properties there,” he said. “It’s very time consuming.”
The courthouse is where public foreclosures are auctioned off every weekday. Termed “trustee sales,” the procedure is part of the foreclosure process. There’s no shortage of inventory as the recession has pushed nearly 52,500 homes into foreclosure in Stanislaus, Merced and San Joaquin counties.
Ochoa said the event generally draws a dozen or so bidders. Each one is looking for a steal.
“You pay anywhere from 10 to 20 percent below market value,” he said.
The discount comes at a big price. Bidders take a big risk as most properties are purchased sight unseen.
“We don’t know the house’s condition,” said Ochoa. “They don’t let you look inside. They’re usually locked or occupied.”
The “winning” bidder could be surprised by a house requiring a lot of expensive repairs, missing bathroom fixtures and stripped of copper wiring.
In addition, the courthouse auction requires the winning bidder to immediately pay — no loans or mortgages accepted — in cash or cashier check. The all-cash requirement locks out most first-time buyers.
Then there’s the pressure getting caught up in the bidding. “Sometimes you only have a minute to make a decision,” said Ochoa.
Flipping in the today’s recession market is less profitable than when housing sales were booming, said Ochoa.
“The profits aren’t huge. You aren’t going to make 50 grand on a flip,” he said. “They’re decent deals, they’re not great deals.”
Scott Abell, a Realtor at Century 21 M&M in Oakdale, concurred profit margins from flips were down from the peak in mid-2000s. “You can’t make more than 20 percent on the flip,” he said.
Ochoa said very few auction properties are bid up to the minimum price and then are returned to the mortgage holder to become REO properties.
“You’d be lucky to pick up one or two a week,” he said. “A lot are priced too high and go back to the bank.”
Make that lucky and brave.
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