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Are You Ready for the Super Flippers?

by Steve Cook on December 6, 2013 · 3 comments

  
Super Flippers

Think you can play with the big boys and girls?

I mean the REALLY big players who are flipping foreclosures for millions at a pop.

Sounds like a reality show? Perhaps it will be but some day but right now super flipping might be the hottest thing going in residential real estate investing.  It’s certainly not for everyone, but conditions are remarkably favorable for investors with the cash to buy and the nerve to market the most expensive foreclosures in America.

When anecdotal reports of multimillion dollar flips hit the media last month, they were driven by word-of-mouth and tales of individual, localized deals.  However, now a new study released Wednesday by RealtyTrac has put some hard numbers and market analysis behind the war stories.  The number of ultra high-end properties worth more than $5 million with a foreclosure notice rose 61 percent from the same time period in 2012 to a total to date of nearly 200 properties, a tiny percentage of the 1.2 million homes that went into foreclosure this year.  However, these 192 homes represent a 61 percent increase of super high end defaults over 2012.

In an interview, RealtyTrac’s Daren Blomquist said lower price foreclosures, even those in the $1 to $2 million and $3 to $5 million brackets, did not experience the same uptick as the very top properties.  In fact, the 2013 increase in fancy foreclosures is a deviation from recent years, when the numbers of high end defaults have declined steadily along with lower price tiers since 2010, when ultra high-end foreclosures over $5 million peaked at 431.

Uptick in Super Foreclosures

The uptick on super foreclosures may be just a one-year phenomenon, possibly related to market and political conditions in Florida and California, which together accounted for more than 60 percent of all ultra high-end foreclosure activity so far in 2013.  In both states a combination of a severe housing boom and bust over the past seven years along with a plethora of high-value coastal property, have resulted in relatively high numbers of high-end foreclosures — although high-end foreclosure activity in California was actually down compared to a year ago.  Florida’s increase may also reflect the extraordinary processing delays resulting from legal and legislative roadblocks confronting the Florida mark.

“I think that this may be playing into the trend where there are more high end flippers,” Blomquist said, “because when we break down the numbers in terms of stage of foreclosure that these properties are in some of the biggest increases are in those that are scheduled for foreclosure auction.  The point is that I think that the banks are open to the idea that multi-million dollar properties would be snatched up at a foreclosure auction.”  He noted that of the 192 ultra high-end foreclosures this year, 108 were scheduled for auction.

Opportunities at Auctions and Short Sales

“It’s also interesting to see that some of these properties are also listed for sale on the market and a lot of times you’ll see a listing price that’s higher than the opening bid at an auction.  The bank may be counting on the opening bid to draw interest at the auction, but I thought it was interesting than banks may be willing to take lower price at the auction because it costs them a lot of money to take possession of that property and to the required maintenance and marketing to get it sold on the MLS.”  Blomquist said.

Blomquist also said many of the 200 homes in the study currently are still in the foreclosure process and still potential short sales.  In fact, the biggest increase in ultra high-end properties than were subject to some sort of foreclosure activity this year are those that tend to be more on the front end of the foreclosure process, not the banks repossessing properties but the banks either filing the initial notice or scheduling  property for public auction.  He said many banks may be trying to trigger a potential short sale.  “I don’t know that they want to take possession of these properties by filing initial foreclosure notices.  That may be enough to get the homeowner to realize the bank is really serious and may want to do a short sale.”

Required:  Guts and Resources

What does it take to join the rarified ranks of super flippers who are doing these sorts of deals?

“You have to prepare for higher cost to prepare the home, not just because it’s a bigger property but because it’s a different end use customer who has higher expectations for the quality of product that they are getting.  In addition, it’s going to take longer to sell.  It’s a high risk proposition, not only because of the money involved but because of the much smaller group of potential buyers,” said Blomquist.

At the same time, the opportunity today is very real.  “I’ve talked to several people in Orange County, LA and elsewhere today who are finding potential bargains on the MLS and elsewhere, not just foreclosures.  However, a foreclosure is a quick way to identify a potential bargain that you could turn into a flip,” Blomquist said.
Photo Credit: Adrien Sifre

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{ 3 comments… read them below or add one }

Roy N. December 7, 2013 at 5:59 am

Steve:
The foreclosure stats on high-end homes/estates is interesting. Do we actually have wealthy in trouble or {upper} middle class folks extended way beyond reason?

Will Bernard:
Sounds like it’s your time in the sun ;-)

Reply

Chris December 8, 2013 at 9:45 am

Roy, there are definitely examples of wealthy and upper middle class folks over extending. I see a tremendous amount of it here in the beach communities of So Cal. Yet a lot of those same people are strategically defaulting. Even though they can make the payments, the value of their house has dropped so dramatically they make an investment decision to walk away from it. We can discuss the morality, but it’s easy to see why someone would not want to continue making payments on an investment that has dropped more that 7 figures.

Reply

melodee lucido December 9, 2013 at 8:38 am

Steve,
Your article made me salivate. I owned a construction cleaning company for years in which my teams would finess the homes for their families at the completion of building. I spent a LOT of time in multi million dollar homes from Malibu to Santa Barbara—it was a blast.

Then in 2007 the builders of those homes were getting super nervous about the impending doom. People that had plans to build their super homes put a hold on things. And some even stopped construction at mid point. Now, several years later, some of those home owners have lost their homes or have had them up for sale as short sales. And as Chris mentioned some just walked away.

I don’t live there any more but dream of, one day, taking on one of these—what I lovingly call–elephant houses. The first one I ever got under contract was 9000sf—-I was SO intimidated. But then I remembered the saying “How do you eat and elephant . . . ” What a feeling of satisfaction an experienced investor would have finishing the sale and seeing a great profit on one of these luxury homes.

Thanks for the tickler to my imagination Steve :>

Reply

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