Flippers buy homes cash and resell for a profit
Flippers or investors are purchasing foreclosures cash, ...
NAPLES — Stephen Campolo watched as his former neighbors tore apart their houses, carting away cabinets, tiles and toilets in U-haul trucks.
He wondered who would buy a toilet ripped out of someone else’s bathroom. Worse, he worried that no one would buy the three foreclosed houses across the street.
Weeks passed and the grass grew knee-high in front of the homes in the gated, Golden Gate Estates neighborhood of Valencia Lakes. But recently, things started looking up: An investment company bought one of the houses and contractors started arriving to throw out trash and fix up the house.
Flippers are buying beat-up, damaged properties, remodeling them and then reselling them for profits of 10 percent to 12 percent of the final sale price. It’s happening in gated and non-gated communities in Naples, Golden Gate, Golden Gate Estates and Naples Park.
They were blamed for driving prices sky-high during the bubble, but so far, residents, homebuyers and experts say these next-generation flippers are serving an important purpose. They’re paying cash for properties that nobody else wants — properties that often aren’t eligible for financing for typical buyers — and making them into homes people want to buy.
It’s changing neighborhoods across Southwest Florida, street by street.
“This is a non-financeable house, so unless an investor bought it and fixed it up, it would sit here and rot,” said Mike Conte, with MFC Investments, standing inside a foreclosure his company recently purchased.
It was Conte’s first time inside the house in Valencia Lakes, and he picked his way gingerly around the kitchen, feet crunching on shattered glass and sugar on the floor. He examined broken cabinets and eyed chewed-on chicken bones in a take-out container on the counter.
The company paid about $150,000 for the 4-bedroom, 2,724-square-foot house at an auction and will probably put about $40,000 into it, Conte said. They’ve listed it on their Web site for $215,900, noting that it will be completely remodeled.
Because the company can’t get inside foreclosed homes before purchasing them, they often don’t know quite how much damage a house has when they bid on it at auction, Conte said.
This house had more extensive damage than he expected, so their profit may be less than he had hoped. They’ll have to completely rebuild the kitchen and the bathrooms, and replace all the fixtures.
Conte’s target profit is 10 percent to 12 percent of the purchase price, so if it sells for the listed price of $215,900, that would be $21,590 to about $25,900. But with at least $190,000 invested in the property before Realtor commission and recording fees, that probably isn’t realistic.
Risk is all part of the game, Conte said.
After buying the property, Conte’s company usually turns around the house in less than 45 days. They have flipped about 100 houses in Naples since the beginning of 2009.
“We are increasing the value of the property and increasing the integrity of the neighborhood,” Conte said. “There are certain streets where we’ve renovated many properties and they look different. For example, Coconut Circle (in East Naples), where we’ve purchased a few properties and they’ve gone from boarded-up properties to fixed-up properties with people living in them.”
Foreclosures have an increasingly negative impact on the property values of the houses surrounding them, said Shelton Weeks, real estate professor with Florida Gulf Coast University’s Lutgert College of Business.
Each foreclosure within one-eighth-mile of a single-family house reduces that house’s property value by 0.9 percent to 1.136 percent, according to a study done in Chicago in the late 1990s that combined foreclosure data with property transactions.
So, say your house was worth $300,000, and your next-door neighbor forecloses. Your property values would decrease only by about $2,700 to $3,408. But if there are five foreclosures within one-eighth-mile of your house, your property values decrease by $13,500 to $17,040.
For example, on 25th Court Southwest in Golden Gate, a street that’s about a quarter-mile long, there have been a handful of foreclosures and short sales recently. Each sat vacant for a time, but many were purchased by investors.
Sylvia Martinez, 53, bought a house on the street in August 2009, and after that noticed a lot of activity in neighboring houses: Construction, and then “for sale” signs going up and new neighbors moving in.
“There’s been a lot of movement since I purchased,” she said. “In the beginning, I was very afraid to move to Golden Gate city, but I’m a single mom and I’m paying everything for myself, and the only opportunity that I had to buy was in this area. Now, I feel very different. The street that I live on is very quiet, and I like it. It’s nice to have neighbors instead of empty houses.”
Often foreclosed properties aren’t eligible for financing, especially with strict Federal Housing Authority loans, because they lack appliances, air conditioners, water pumps or have torn-up kitchens or bathrooms, said Brenda Fioretti, real estate agent and president of the Naples Area Board of Realtors.
Fioretti called the remodelers “investors” _ not flippers _ and agreed that they are serving an important market function right now.
“When you see people come into your neighborhood and fix up and buy properties and immediately try to flip them, it makes people a little apprehensive,” said Shelton Weeks, real estate professor with Florida Gulf Coast University’s Lutgert College of Business. “But when (a house) goes into foreclosure it’s as if it’s sort of fallen off the grid. The only thing that’s going to get that back into the system is a (buyer) who is going to do all the work themselves or a company that’s going to fix it up and get it back on the market.”
Olivia Hernandez, 45, needed a house that was in good condition for her family of five, and she had heard horror stories about buying foreclosures from banks. When she stepped into a move-in ready, five-bedroom house in Golden Gate Estates and saw that it had a huge family room, she knew it was perfect for her four kids.
Hernandez bought the 2,280-square-foot house for $143,000 in December 2009, three months after an investment company purchased it as a foreclosure for $121,100.
“I don’t know if it was remodeled,” she said. “All I know is that when we saw it, it was ready to move in. All the walls are white. It was just move in and paint the walls the colors that I wanted to make it my own.”
Asked whether the flippers and investors eventually might drive up property values and create another real estate bubble, Weeks, the FGCU real estate professor, said no.
“There’s so much inventory and the financing landscape is so much different than it was during the bubble,” Weeks said. “The chance of a secondary bubble resulting from this is minuscule. Swings in real estate markets tend to happen over very long periods of time.”