House flippers are back at it

[Liberal_in_LA]

Flipping houses is back in South Los Angeles

Investors are snapping up foreclosed homes in hopes of making a quick killing.

The musty smell of neglect greeted the two investors as they stepped past the waist-high weeds and peeling paint to cross the threshold of the latest prize: a boarded-up two-story house in South Los Angeles.

Shards of glass crunched underfoot. The men spied a shoe-sized hole in one wall and an empty can of Steel Reserve beer on the floor.

"This is not bad," chirped Robert Fragoso, complimenting his friend Olivier Clamagirand on his new purchase.

Two days before, Clamagirand paid $180,000 for the lender-owned home on Second Avenue, six blocks east of Crenshaw High. His plan is to spend $45,000 on repairs and sell the house for about $320,000.

"The key is to buy right and move quick," Clamagirand said in his thick French accent. "If you can get out in three or four months, you're good."

Flipping homes is back.

Lured by steep discounts on bank-owned properties, investors are sifting through the wreckage of Southern California's real estate bust, snapping up foreclosed homes in hopes of making a quick killing. The rapid-sale rebound comes amid a general recovery in housing prices and sales, and the epicenter is South Los Angeles.

------------------------

"People have very, very short memories and we go straight from collapse to bubble," said Leo Nordine, one of Los Angeles' top foreclosure agents. "The second South L.A. stopped crashing, we started getting 20 offers on everything."

Investors say there is no shortage of buyers.

Standing outside the open doors of a three-bedroom, one-bathroom, fully refurbished home in Compton one recent weekend afternoon, real estate agent Sonia Moncayo greeted a steady stream of potential buyers in Spanish as ranchera and banda hits played from a neighbor's stereo.


http://www.latimes.com/business/la-fi-south-la-20100425,0,3267386.story

[flvegan]

1. How much did the lender lose on the $180k sale?

I'm willing to bet it's quite a bit. They want cash, not property and are making deals. Little different than it was the last go round, at least in this instance.

[Go2Peace]

4. Institutional investors were/are the big winners

[Go2Peace]

2. Of course, the *REAL* cause of the housing mess> Lowering the Business Capital Gains rate.

It enabled speculative activity into what was previously a primarily resident owned market. Perfect proof. Letting the big players in should lead to more supply and lower prices according to our Market propaganda. Instead it shows us that the institutional investment houses just artificially drive unnatural market behaviors.

But you never hear what really happened, you just hear the official story. Because if people knew the truth a lot of folks would lose a nice little borderline dishonest and easy money track.

[zeos3]

16. Please elaborate.

I'm pretty sure i agree with you but I want to make sure I understand what you're saying.

I got lost when you mentioned the big players and institutional investment houses.

[Go2Peace]

26. The market became full of instututional investors and speculators

Previously it was not profitable for companies to buy and sell already developed homes. It was primarily a consumer driven market. When only consumers are the mass purchasers the prices are not able to get out of reach, because consumers can only pay up to a certain price for housing based on current wages. So the building industry was always forced to build homes that were priced into a certain range of options.

Once institutional investors and corporations we able to come in (and much of that had to do with the lowering of capital gains reductions, the primary tax when buying and selling real eastate), that balance was destroyed. Instead of having to sell houses to people who would live in them, their was a new stream of people to compete that were willing to drive the prices of homes up and speculate on them.

Once that happened you had a "stock market" kind of effect, where the prices of houses did not reflect the reality of their worth. That is really what screwed the home market and is causing most of what we see today. It brought about unnaturally high prices and way too much inventory. It will happen again, bubble after bubble as long as we do not correct the problem and increase capital gains to drive instututional speculation (gambling) out of the market.

Having said all this, that effect would never have caused the banking crises. It was not enough on it's own to sink the banks. What happened there was they looted all the worth of the loans. I can't prove it but I suspect the money is offshore. Like what happened in Russia our Oligarch class basically stole the wealth our of our system, TRILLIONS, and hid the money. That is the story that history will tell, Not what we hear on the news.

[Warpy]

3. People who buy unlivable houses, renovate them

and sell them as fully livable properties are performing a valuable service.

Flippers are the ones who snapped up new construction and held it off the market in an attempt to make a fast buck on the "bigger fool theory" that happens in bubble markets.

They're different.

[Go2Peace]

5. And they were able to do that (for a while) because of the lowered Capital gains

The ones who artificially bought up new homes. They will be back again, because many of them were investment firms who made money over all. Another thing we need to outlaw.

Previously this never would have happened because Residential real estate was only profitable for long term investment. Yet we almost always had enough houses to meet demand and the prices stayed reasonable overall? Funny how that worked and we left that model?

[county worker]

7. What drove the bubble was people getting liar loans and such.

If the regulations and restrictions on borrowing were left in place the speculators would not have had the market they did.

[Go2Peace]

12. Naw, that is the public excuse.

The "liar loans", even though they were too prevelant, would never have sunk the economy like this. There is a grand coverup of a huge THEFT, along with the destruction of the residential market through speculation.

Even seen the PBS interviews with Bill Black? He exposes the who thing. Blaming it on bad consumers has been convenient propaganda. Too bad so many bought it hook line and sinker.

[Warpy]

8. The bubble started because there was tremendous pent up demand

from late in 1978 through the mid 1990s when interest rates were too high for most people to afford to buy. What happened is that people heading into their prime house buying years had to defer their plans for about 18 years if they hadn't lucked out and bought before the big jump. Because few were buying, few were building and it wasn't uncommon then to see housing developments started but unfinished, framed houses rotting while everybody waited for interest rates to come back down.

In the beginning, prices went up because there were too many buyers chasing too few houses. Because they went up quickly, builders stared slapping up developments as fast as they could and speculators jumped into the market, spurring even more demand. That was the perfect storm that created the bubble.

Now we have the problem of the wrong type of housing overbuilt to satisfy speculators and mortgage lenders who got burned (mostly by the speculators) who have tightened up their lending to a ridiculous extent, meaning we have a glut of housing and few qualified buyers.

I don't think we'll see the stupidity of people buying houses to allow them to sit empty two years in the hope of cashing in. That's just not going to happen. However, there is money to be made on damaged REO houses, doing safety and cosmetic work to make them livable. It's not the massive profit there was five years ago, but there is profit.

The problem will be to find buyers the banks will approve.

[Go2Peace]

13. No doubt there were multiple factors. But the largest one was FRAUD. Period

along with mismanagement and speculation cause by the lowered capital gains. There were major retirement and large investment funds playing speculative games. What drove up the price had little to do with affordability and true market forces that should have kept home prices within reach of near average wage earners.

No, it was the fact that prices were unnaturaly high and the market was already out of balance that "liar loans" suckered the common man (and some cons) into the game, but it was innapropriate access and allowing speculators in that drove everything to that point.

[Warpy]

18. I know you'd really like to believe that, but

fraud at the consumer level was a late phenomenon and was more fraud at the lender level.

The real fraud occurred with hedge funds and investment banks colluding with ratings agencies to put out incredibly risky "investments" that were so exotic that institutional suckers had no idea what they were, but those AAA ratings made them look safe and the returns were great.

They knew those "investments" were garbage and bet against them through insurers like AIG, making sure they'd cash in when the bubble collapsed, as all bubble markets do.

That's where the real fraud was, in the upper reaches of the financial sector and it was perpetrated worldwide. It's just harder to wrap your brain around fraud on such a massive scale, so it's comforting to say that working class people creatively financing a $500,000 shack in California were to blame.

[sendero]

19. Liar loans...

.. zero down loans, option ARMS, everything that made it easy for people that couldn't afford a house to buy one contributed to this mess.

Contributed in two ways - people got in over their heads assuming a continual price rise, and an artificial price rise caused by their purchases made their belief plausible.

One part I do agree with, the Federal govt has been trying since 2007 to re-inflate this bubble because that is the only thing that will save the banks. It would be foolish to think they will NEVER be successful, it's still unlikely but not impossible.

[Go2Peace]

25. Your wrong. That is the corporate spin. But not what really happened

The Right wing LOVES to get us against each other. Sure there were people that made foolish decisions. People always do stuff like that. But that in itself would NEVER have caused the failures that occurred. When the banks failed it was estimated that there were 5-7% of loans that were going to fail in the residential markets. That was not near enough to fail the banks.

But because they KNEW (yes, they understood what they did) their fraudulent schemes were going to take the system down they planted the false propaganda that it was "consumer fraud", so to speak. Of course, Americans always looking to eat each other fell for it. Just like they did with election fraud. Send out false information that people were risking their necks to vote with dead people's IDs, and stupid people all over believe that over what really happens.

Homes became too expensive and some people got over their heads. But how did that happen? There was an oversupply underneath the market yet prices continued to go up? And that must be the consumers fault? Naw, as usual GREED won out and speculators destroyed market principles. House prices soared unnaturally and even then, that would have been a great adjustment, but not have take out the system.

It was a HUGE fraud, where high level employees and CEOs sucked the remaining value out of many of those loans using instruments of fraud and enriching themselves that killed the system. Go ahead and keep believing the faux news on this. Some of us know better.

[sendero]

27. They could have NEVER..

... made this work without making the loans, period. Sorry, you are wrong.

[PassingFair]

23. Actual "flipping" is totally illegal. The definition has broadened in recent years...

A friend of mine who is an appraiser gets annoyed
when people talk about "flipping" a house, because
she's seen people get jail time for it.

In year's past, when people talked about flipping houses, this is what they meant:

From Wiki:

Flipping can sometimes also be a criminal scheme. Illegal property flipping is a fraud-for-profit scheme whereby recently acquired real property is resold for a considerable profit with an artificially inflated value. The real property is resold within a short time frame, often after making only cosmetic improvements to the real property. Illegal property flipping often involves collusion between a real estate appraiser, a mortgage originator and a closing agent. The cooperation of a real estate appraiser is necessary since a false and artificially inflated appraisal report is required. The buyer (ultimate borrower) may or may not be aware of the situation. This type of fraud is one of the most costly for lenders because the loss is always large.

The following is an example of an illegal property flip: A buyer contracts to purchase a property in his name for $30,000. Before closing the deal, he draws up a second contract to sell the property to a co-conspirator at $70,000 — a price substantially higher than market value. He seeks a loan for a second contract through a mortgage lender or a mortgage broker and submits an application. A real estate appraiser inflates the value of the property, enough to justify the loan, and is paid triple the usual fee (although many times inexperienced or incompetent appraisers are unwittingly caught in the scheme through pressure and intimidation from the scammers). A mortgage lender approves the application and releases the $70,000. Next, the contracts for the property are closed either simultaneously or within a short time from each other. The originator of the scheme takes the $70,000, pays off the $30,000 and divides the remaining $40,000 between himself and any other plotters — usually the mortgage broker or loan officer and sometimes the second buyer. The lender ends up with a 100% or greater loan to value mortgage. That buyer makes a few payments on the property, then defaults and allows it to go into foreclosure. Finally, the lender learns that the property doesn’t even cover the loan value.


Now it's more commonly used to describe people who renovate and resell.

[northernlights]

15. +1

renovating unlivable houses is not "easy money." It's hard work, risky and a valuable service.

[GSanon]

24. definitely a good point, there is good flippint and bad flipping. nt

[county worker]

6. My realtor says houses are due for another hit downward in prices soon.

That is what she told me today.

[Marr]

10. There's a tax credit that's going to be up at the end of the month.

Could that be what she was referring to? I've been shopping for a house, and am expecting prices to drop a bit next month when they tax credit is no longer part of the equation.

[Warpy]

20. She might be right

but it's not because of the expiring tax credit. It's because there is a huge inventory out there and banks are simply not approving people the way they used to, meaning there are too many houses and too few qualified buyers and that always spells deflation.

In addition, banks are starting to trickle their shadow inventory back onto the market, adding to the glut in housing.

The problem in a lot of markets is that the real glut is in the wrong type of housing, the yuppie trophy houses, where the real need is for starter and family housing. Unfortunately, those trophy houses are dragging all other prices down.

My best guess is that eventually whole exurbs of higher end housing will end up being razed, the places too impractical for growing families and too hard to heat and cool.

[madrchsod]

9. there`s a good chance i`ll be doing that this summer...

a friend of my wife is interested in buying houses to fix and rent.she`s also exploring a rent to own plan for tenants. i`ll be advising her on exterior and interior design.

[SoCalDem]

11. My friend's daughter & her fiance' have been waiting TWO MONTHS to hear back from a bank

on a house they made a very fair offer on.. They have approved financing, and a renter waiting to move into her house she currently lives in. He's renting an apartment, and she has a 2 bedroom house for herself and her twin daughters, but since he has custody of a 7 yr old son, they need a 3 bedroom. She cannot afford to sell her current home, and even with owning a home, they qualified for more than enough to buy the new house , but the bank is dragging its feet.

Banks put up for sale signs, and advertise a low-low price, but then sit on them for months to see what offers come in.

Individuals have a pretty small chance to even get these "bargains", because their financing plans are often with other banks and they have a time limit on them, and sometimes the banks with the properties just sit back until a "BIG" fish comes along with millions , to unload several at a time..

The people who made good faith , real offers, will sometimes never even get a response from the bank..

[Sen. Walter Sobchak]

14. yup...

Some douchebag from San Francisco just bought two houses on my street, ironically one of them is a previously flippers waterloo that never sold and went into foreclosure, the other an estate sale. He also made a rather insulting offer on my house which isn't for sale.

[proudohioan]

17. There are two on my street....

and frankly, I'm not happy to see them.

It artificially inflates the cost of ALL housing to the point that average buyer/renter simply cannot comfortably afford. When wages are stagnant/declining and other costs of living are rising, it's just a recipe for disaster, IMO.

[Warpy]

21. I think most lose money on their first several projects

because they've overestimated the demand and the price they'll be able to ask for that finished house.

Don't forget, they're not going to get any more for it than they'd get for a beat up, lived in property in the same area. It's just that the shiny, painted, staged place will sell sooner.

It's a tough way to make a buck. It's back breaking work with no guarantee of a big payoff at the end, especially with construction loans needing to be paid off while the house sits on the market.

[proudohioan]

28. Sorry, fixers/flippers just leave a bad taste in my mouth.

The ones I know of don't break their backs, they are more like predators. I do realize that most folks trying to remodel a home to make it habitable, whether it be for themselves or the next buyer/renter do actually break their backs (my ex and I tried that back in the early 90's; not something that I would ever attempt again, that's for sure), but the ones that I'm familiar with pretty much slap some half assed work into a property, and get some sucker to pay full price for the place, and pay dearly later on. That said, the old saying "Buyer Beware" really should come in to play, but there are always some that get played, and I just don't think it's right.

[cbdo2007]

22. I know a group of guys who does this. They are "unemployed" so they

all banded together and have been buying houses, they fix them up, and resell them.

I don't see anything wrong with it. Where else are they supposed to get jobs?? It still doesn't even pay as much as a real job but they can usually do it pretty quickly for a couple grand a month each.