Vulture investors flipping their way to big profits

Vulture investors are buying houses, like this Austin home, and reselling them for profit.This Austin home was bought by an investor for $138,000 and is reselling for $188,000. By Les Christie, staff writer


NEW YORK (CNNMoney) -- Even in these down times, there's money to be made buying and flipping houses.

One might think this would be a most dangerous game -- after all, home prices are down more than a third from their peak in most areas. But plenty of investors are taking the risk in exchange for big profits.

In fact, nearly 1 million homes were bought as investment properties in 2010, according to the National Association of Realtors.

"It's absolutely viable," said Perry Henderson, a real estate agent and investor in Austin, Texas. "But you have to buy intelligently and go after the right opportunities."

Henderson helped one investor close a deal on a three-bedroom, two-bath house for $138,000 in Austin. His client is now selling the property for $188,000 after putting in $10,000 worth of repairs. Add in transaction costs and this investor is still making at least $20,000 in just a few weeks of work.

Of course, this is Texas where home prices have remained more stable. The buy-and-flip is more difficult to execute in Florida, where the bubble hit hard.

"It's been almost a dead issue," said Jack McCabe, a real estate consultant in the Sunshine State. "A lot of the deals done over the past two years were at 50% discounts to 2006 prices and they'll still turn out to be unprofitable."

Still, there are some Florida flippers making money, particularly those buying inner-city properties selling at deep discounts. Some of the homes sell for $30,000 or $40,000 when they once fetched $200,000.

"There are opportunities if you're sharp and knowledgeable about the local areas," McCabe said. "Buying at those prices, there are profits to be made."

The buy-and-flip is also easier in rising markets, but there are precious few around. But Washington, D.C., is on the list, being one of only two metro areas to record year-over-year price increases, according to the most recent Case-Shiller 20-city home price index.

"Most of my clients go through four of five properties a month," said Justin Konz of Restoration Capital, which finances many D.C.-area purchases. He claimed his clients are making gross margins of 35% or higher.

Most shoppers buy very selectively from three main sources: foreclosures auction sales; homes repossessed by banks (REOs); and short sales. Prices must be rock-bottom low and fix-up costs modest, only about 5% or 10% of purchase prices.

Henderson prefers ugly, beat-up homes that have sat on the market or "old houses that somebody's grandma lived in for 40 years and didn't do anything to. Now, she's passed away and her family wants to sell quickly."

Those, he said, are where the deal can be found because he's improving the bad properties in good neighborhoods.

One real estate investor, Brian Fuller, hates the term "flip," even though he and his partners buy and sell more than 200 properties a year in and around San Diego.

"It doesn't describe what we do," he said. "We buy the biggest eyesore on the block and turn it into the best looking house there. We're helping pull up values in the neighborhood." To top of page


Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.96%3.94%
15 yr fixed3.08%3.03%
5/1 ARM3.33%3.33%
30 yr refi4.04%4.02%
15 yr refi3.16%3.09%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
  • Find Homes for sale
    Real estate and homes for sale on Trulia

  • Property Type
  • Find a home in: New York | Atlanta | Chicago | Los Angeles
  • Washington D.C | Houston | Philadelphia | More options
Index Last Change % Change
Dow 17,105.25 130.94 0.77%
Nasdaq 4,538.81 -10.42 -0.23%
S&P 500 1,984.76 2.46 0.12%
Treasuries 2.29 -0.04 -1.55%
Data as of 11:21am ET
Company Price Change % Change
Facebook Inc 73.31 -2.55 -3.37%
Bank of America Corp... 16.95 -0.04 -0.24%
Intel Corp 32.98 -0.94 -2.77%
Apple Inc 106.40 -0.94 -0.88%
Avon Products Inc 10.14 -0.82 -7.48%
Data as of 11:05am ET

Sections

Consumers continue to ramp up spending. That's very good news for credit card companies. More

San Francisco-based Tumml is an accelerator fostering 'urban impact start-ups' that aim to tackle civic problems -- and turn a profit. More

Apple CEO Tim Cook writes column in which he announces that he's gay: "I consider being gay among the greatest gifts God has given me." More

San Francisco-based Tumml is an accelerator fostering 'urban impact start-ups' that aim to tackle civic problems -- and turn a profit. More

In cities across the United States, millions of people will be kicked out of their homes this year. Some can't afford their soaring rent, others are getting evicted over minor violations by landlords eager to get higher paying tenants in place. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.