(MCT)—Seasoned real estate investor Kurt De Meire led an eager group of students on a field trip to a recent foreclosure auction. He wanted to show them how to flip homes — find bargains and resell them quickly at a profit.At one point, he nonchalantly pulled an item out of an envelope from one of his clients, an investor who couldn’t make it to the Pomona, Calif., auction that morning. The newbies ogled it. It was a cashier’s check for $1 million. “There will be millions of dollars of real estate sold here,” De Meire says, gesturing toward veteran bidders in T-shirts and jeans as the auctioneer began rattling off property addresses. “These people would not be here if they weren’t getting good deals every day.”
The house-flipping frenzy of the mid-2000s, glamorized on TV reality shows such as “Flip This House” and “Flipping Out,” helped drive up prices to unrealistic heights before the housing bubble burst. Since then, however, investors paying cash for distressed properties have been credited with helping the real estate recovery.
Relatively low housing prices and interest rates have fueled a renewed fascination with flipping in the past few years. But competition from large private funds buying homes to rent out and rising prices are changing the market.
House flipping increased 19 percent year-over-year across the nation in the first half of the year, a July report from housing data firm RealtyTrac shows.
“I would say the climate is getting a lot more difficult for the house flipper,” says Ryan Meltcher of Brea, Calif., who invested in about 80 homes last year. “It’s harder to find good inventory.”
Investors have various ways to buy available, lower-cost properties. One route is to attend the auctions of homes going into foreclosure.
Homes aren’t the only properties on the block; apartment and commercial buildings are part of the mix, too. Postponements are common, as owners in default scramble behind the scenes for loan modifications, try to sell the home at a loss or file for bankruptcy. De Meire’s client who gave him the $1 million check didn’t score the property he wanted at the auction in Pomona. The sale rolled.
De Meire owns CountyRecordsResearch.com in Huntington Beach, Calif. The firm — operating in California, Arizona and Nevada — processes foreclosures for lenders, tracks distressed real estate and teaches investors how to buy the properties. He also provides a bidding service at auctions for investors who can’t attend.
When he takes would-be flippers on field trips to the auctions, De Meire, in his wide-brimmed hat, speaks in a slow, instructive style as he explains the auction process. He also ticks other ways investors can find opportunities, all before a home is relisted on the market.
You can approach a homeowner long before the foreclosure auction, he tells the students, once the property goes into default, which is the first step in the repossession process.
Or you could buy a delinquent note from the bank at a discount and take over the home loan, he suggests, essentially becoming the lender, and eventually foreclosing on and reselling the property at a profit.
Another idea: Try to buy the home from the lender immediately after the auction in what’s technically called the trustee sale, after no one has bid on it and the home has just reverted to the bank.
Or snap up the home from another investor who bid successfully on the property at the auction — an on-the-spot flip. This scenario offers the luxury of an escrow period, De Meire said, and a chance to get financing and title insurance, which can’t be done before bidding at the auction.
But, De Meire says: “Don’t ever limit yourself to bidding at these sales. There’s much more to this business.”
Virgil Thompson of Los Angeles, who performs energy audits on buildings for a national company, came to Pomona to learn how to buy properties at the foreclosure auction. But after listening to De Meire, he left with another idea.
“I like his smart strategy of buying the note,” Thompson says.
De Meire, 57, became an investor when he was in his 20s. At that time, he said, he heard, “ ‘People my age would never be able to afford real estate.’ ‘Values are too high.’ ‘The opportunities are behind you.’”
But that wasn’t true. “There’s no end to opportunities if you know all the different ways to take advantage of the marketplace,” he says.
No matter what the housing market does, he noted, people will always get into trouble with their money. Homeowners run into problems because of a divorce. Some borrowers become alcoholics or gamble away the mortgage.
“There’s never an end to people going into foreclosure, for so many different reasons,” De Meire says. Other investors bypass foreclosure auctions entirely.
Every home Meltcher buys is distressed — the owners are in default or the residence is in some other stage of foreclosure. He buys the homes on the open market — including properties on the multiple listing service and pocket listings from agents — rather than at the auctions. Meltcher, owner and principal of real estate investment company The Investment Division in Brea, said he’s on track to buy at least 80 more properties this year, outpacing last year.
But with housing prices and interest rates rising, he said, fewer buyers have materialized: “I have a lot more property today in my inventory that I’m holding than I ever did.” That means reselling in six to eight weeks, he says, rather than three to five weeks.
Meltcher says the market has attracted amateurs who cut corners, which creates a negative ripple effect.
“I see a lot of armchair investors coming into the market and not taking the time and energy to do things correctly,” he says. “People take a lot of shortcuts. People think it can be done cheaply, that quality doesn’t count. They’ll put in new carpet and paint and walk away.”
When the restoring of a home isn’t up to par, he said, it won’t appraise for top dollar, which hurts comparable property sales nearby.
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