6 Big Flips With a Little Coin
By Michael V. Copeland

(Business 2.0) – The Strategy: Become a Foreclosure Shark Minimum Investment: $50,000

Maybe you've seen the signs on light poles throughout the Midwest: "We Buy Houses. Ca$h ... Fast." John Burley is the man with the ca$h. With it he buys 10 to 12 houses a month--from owners who've fallen on hard times--and sells each at a minimum profit of $10,000.

As one of the biggest players in the estimated $75 billion foreclosure business, the Phoenix-based entrepreneur employs seven scouts around the country who get to sellers before their houses are sold through government-run auctions. "People always believe some miracle is going to happen, that their house isn't going to be taken away," Burley says. "It doesn't happen. The houses are going to be lost either way--either to an auction or to me."

These days, though, it doesn't take hired scouts for the average investor to play the game of foreclosure arbitrage. Consider the factors in Burley's favor. Consumer debt has never been higher, lending requirements never looser. And if interest rates spike, tens of thousands of homes could be on the block at bargain prices.

So how do you grab one, without going through a foreclosure auction? Burley deals in so-called short sales with the banks that hold the mortgages. Most lenders, he says, will sell distressed homes for 70 to 85 cents on the dollar instead of risking the cost and uncertainty of an auction. "Banks are a lot more flexible right now and willing to make a deal directly with me," Burley says. Any investor can find distressed property listings through local courts. From there, you need to contact--and sweet-talk--the owner into doing a deal with you. Then you can start haggling with the bank.

Burley calculates his profit margin long before he gets to that point. He sets $20,000 as his profit goal for each house. Let's say he sees a property he figures he can flip for $100,000. To get it ready, he'll have to pay about $21,000 in repairs and commissions. To clear $20,000 profit, then, he'll pay $59,000 or so for the house. "That way when the dust settles, at a minimum I make $10,000," Burley says. "I'm not counting on appreciation or any tax benefit. If you do that, you start losing money on deals." -- M.V.C.

Burley's Hottest Markets

[*] Third quarter 2004. Sources: John Burley; National Association of Realtors; Fayetteville Realtors Association