They're out there, again, constantly searching for and scooping up South Florida homes at steep discounts, hoping to turn a nice profit. A house might barely have time to get listed before it's gone that is, before it's back on the market a few months later at a 20%, 30% (do I hear 50%?) markup.
Yes, the home flippers are back, beginning to dominate the real estate landscape in one of the epicenters of the housing crisis. Sounds like 2003 all over again? Are they harbingers of another housing free fall?
Real estate analysts say not to panic yet. This new cohort of investors is kinder, smarter, less predatory. It might even mark the era of what experts are calling "the good flipper." "The first group blew it they don't have any money left," says Bradley Hunter, who heads the South Florida office of Metro Study, a housing-consulting firm. "The current group of investors is made of [genuine]investors and not momentum flippers."
Those who bought seven years ago didn't care how high the price might be they just assumed the price would keep going up. Things are different now. "Today's investors are saying, 'It's all about the price,' " Hunter says. Jack McCabe, a real estate consultant in Deerfield Beach, Fla., agrees. "These are not the cocktail-party investors of 2005," he says. "Today's flippers are generally long-term real estate investors with war chests of cash who were waiting for the debacle to unfold and for the opportunities it would present."
The current crop of investors, analysts say, are playing a crucial role in reviving the housing market, buying up homes that have been foreclosed on and often torn up by the previous owners and getting them back into shape. Many former owners hauled appliances away and ripped out the wires. Some got so boiling mad that they pulled off cabinet handles and smashed glass doors. Somebody's got to clean up those messes, and that's what the good flippers do, observers say. They might try to sell right away or rent the houses for a while. Either way, it's good for the whole neighborhood, because a house that might have sat fallow is now rehabbed, preventing drops in value all around it."They're vital," Hunter says of the good flippers. "I can't think of a conceivable way that we could turn the market around without them."
A group of investors that goes by the name Pudlit has bought up 59 homes in Palm Beach County since the fall. A three-bedroom house that the group bought in September for $95,700 is back on the market for $148,900 a 55% bump. David Dweck, an investor and mortgage broker who founded the Boca Real Estate Investment Club in the 1990s, says he's done 50 deals over the past year as either the buyer, the broker or the lender. "Are you sitting down?" he asks, then describes a three-bedroom house he just snatched up, in the admittedly "spotty" West Palm Beach neighborhood of Northwood Hills, for $26,000. "It's got great potential," he says. "I can either sell it or rent it. It doesn't matter to me."
But even Dweck cautions against placing halos over South Florida real estate investors. Are some people out strictly for the quick hit that will inflate prices artificially? "Without a doubt," Dweck says. "We are in the fraud capital of the country." Even good flippers sometimes cut corners on home improvement, putting new doors on old cabinets in one Pudlit house just in time for potential buyers to be escorted on a tour.
And there is still troubling game playing afoot, observers say. At a courthouse foreclosure auction, when a novice buyer has his heart set on a property that more seasoned buyers deem undesirable, sophisticated investors will routinely team up and place bids designed to jack up the price. The novice will get his house, but he'll have overpaid. That means he'll have to put a higher resale price tag on it to get a return on his investment, offering less competition to the more seasoned buyers who will have paid less for their homes. It also means less competition on other purchases, since the novice buyer might have put all his eggs in one overpriced basket. "That happens all the time," says Dweck. "They'll bid 'em up, let 'em have it, and laugh."
What's more since "cash is king," as McCabe puts it even good flippers can make things more difficult for the traditional buyer who needs to borrow. "It's difficult for those buyers to get the properties that they want," says Yanmei Li, an assistant professor in urban and regional planning at Florida Atlantic University who is researching the resales of foreclosed homes in Fort Lauderdale. "Sellers are willing to sell to the cash buyer even if it's a little bit lower than they want."
Artificial price inflation might be more prevalent than is generally acknowledged, she adds. For example, one Fort Lauderdale home she came across was bought from the bank at $60,000, then sold four days later for $20,000 more. That smacks of an unreasonable hike, though she acknowledges the bank may have simply wanted to unload it at a bargain-basement price. "Once the price is inflated on one property, the surrounding properties' prices will also be inflated," Li says. "I'm a little concerned that the prices might be more inflated in two or three years because the investors are doing that."
Li notes that lazy appraisals that take into consideration only price comparisons rather than looking closely at the actual quality of the housing stock are also to blame for the prospect of artificially inflating the market. In short, she says, the same age-old advice holds true: "The buyer has to be educated about the buying process." Which might go a long way toward preventing what got us into this mess in the first place.