Foreclosures offer new twist on old game: flipping houses

What started as a hobby for Keith Gamble is now a risky, exciting, full-time job: buying properties at the monthly foreclosure sale and flipping them.

Gamble is part of a new generation of property flippers who buy at low prices at a foreclosure auction, clean up a property and sell it for a profit.

"Some people's bad fortune is other people's opportunity," said Gamble, from South Carolina. "I know that sounds callous. ... I know people doing what I'm doing at the courthouse each month are there to take advantage of that opportunity, but I also feel we provide a backstop to the market."

Today's flippers differ from those during the real estate boom who took advantage of rapidly increasing prices and were fueled by loose lending regulations, said Tom Maeser, a real estate analyst with the Coastal Carolinas Association of Realtors. When the market collapsed, many of those flippers were stuck with properties they couldn't afford, he said.

"That really irritated a lot of people and caused problems," Maeser said.

Brian Liggan, owner of Virginia Capital Realty in Richmond, said flipping houses can be lucrative, but it also can be risky.

"The higher potential rate of return, the higher the risk," Liggan said. "Some people do beautifully flipping houses, but some go in the hole or just break even."

People need to know the market and they need to understand that many foreclosed houses are in serious states of disrepair, Liggan said.

That aside, hundreds are available for sale in the Richmond area. Liggan's company, which specializes in selling foreclosed houses, is on track to close on a record 1,000 houses this year.

The flippers during the market peak often would buy a property before construction, wait for it to be built, hold onto it for a few months and then sell it for a profit.

Today the flippers are buying at low prices, doing some minor repairs and then trying to sell the properties quickly.

The profits aren't as large but the flippers may be selling more properties in a year, said Penny Boling, the broker-in-charge of Century 21 Boling and Associates in Myrtle Beach, S.C.

Flipping properties isn't something new, she said; it's just taken different forms over the years, and it hasn't always had that name. Boling said she sees some differences between today's flippers and those during the boom, including their knowledge of the market.

"They are really doing their homework on what prices are," she said. "Before, the market was going so fast no one was looking."

Many of the foreclosure flippers will attest to the hours of work they put in; several said they spend upward of 60 hours leading up to the auction doing research and trying to see properties they might want to buy.

Unlike a typical property purchase where a buyer can see the property and get a home inspection, often a buyer of a foreclosure at auction has little access to a property and sometimes must bid without seeing the inside of it.

"There's just a lot of research involved in it," said Johnny Buxani, a Realtor who also flips foreclosure properties.

He will look through a list of properties for sale, identify the ones he is interested in and then try to drive by to see them. Once he narrows down the list, he looks at the market value and establishes how much he would be willing to pay and how much he thinks he could make on each property.

It's important to know about the real estate market to know about any problems with developments or buildings and to be up to date with how prices are changing, Buxani said.

Armed with those papers and a budget, he heads to the monthly foreclosure sale and tries to be the winning bidder.

"It's really gambling," Buxani said. "It's a rush."

There is often competition among bidders on the best properties, but most have a set cutoff price. The winning bidder has to pay a 5 percent down payment within 24 hours and the remainder of the price within 30 days. Unlike flippers during the boom, these buyers aren't piling up loans that they can't pay back. Instead they're paying cash either from their own money or with the backing of investors.