The San Francisco Peninsula Real Estate Blog

Buy Low, Sell High…

Flipping homes hasn’t been a topic that has been discussed much lately because the practice has all but dried up in recent years. Why?  There are two elements that have to be present simultaneously for a flipper to be successful:

1. Supply of low-priced homes to purchase (buy low.)
2. Strong buying market (sell high.)

In the past few years, one or both of these elements have been missing, and consequently folks who were trying to flip homes often got left holding the bag at the end of the day.   But that’s all starting to change, and the driving force behind it is coming from an unlikely source: the economy.

Auctions

Smart investors and contractors are finding that they can often get an incredible deal on foreclosed homes that are being sold at auction, often at steep discounts.  And if you see the list of homes scheduled to be auctioned in San Mateo County every week, it’s clear there will be an ample supply of homes for flippers to choose from for quite some time.

Not all foreclosed homes are good candidates for flipping.   After all, the normal requirements stiill apply when it comes time to sell the home: Location, condition, and price.   If the home is in a bad location, or if it’s in a dilapidated neighborhood surrounded by other foreclosed properties, it’s going to be a tough sell, regardless of how nice the home looks after it has been refurbished.   But with mortgages failing at record rates in all price ranges, inventory is coming up constantly in the better neighborhoods.

Turn and Burn

Depending on the scope of work to be done, a home bought at auction can be refurbished in as little as a few weeks.   I saw one stunning example recently in Redwood City where the kitchen and bathroom were completely remodeled, new paint applied throughout the house, and the hardwood floors refinished — all in 3 weeks.  The new house was stunning, and re-sold in less than a week with 3 offers.

Where’s the Demand?

As I have written about before, the sub $1M segment is red-hot right in many communities right now.  With the conforming loan limits temporarily extended to $729,950 in most areas,  money is much easier to obtain than it was when the limit was $417,000.   Consequently,  there’s a big supply of buyers already pre-approved in ranges between $500k and $1M, and they’re ready to buy.    And the better the condition of the home, the more buyers will compete for it.

Good for the neighborhood.

The net result for the surrounding neighborhood is often positive when a home is flipped.  Granted, it sucks in this situation for the person whose home was foreclosed.  But when an neglected home is replaced with one that’s in much better condition and will likely sell at a higher price, it’s good for those homes that are nearby.     Improving the appearance and value of a neighborhood is good for everyone.

Keep Your Eyes Open

If you’re looking for a starter home that’s in move-in condition, keep your eyes open because there are deals out there.   I know of several contractors in the mid-peninsula area who are solely focused on flipping homes in this segment right now, and they’re putting some incredible 2 and 3 bedroom homes back on the market in the upcoming months.

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The Clock Begins Ticking Again…

The Washington Independent posted an alarming article this past week that states that Fannie Mae and Freddie Mac have quietly lifted the moratorium that was in place on foreclosures.   The agencies put this moratorium in place in late 2008 as a way to slow the potential tidal wave of  foreclosure filings,  and to allow the new Administration time to implement their economic recovery plan.   Here’s the complete article from the Washington Independent –> Fannie, Freddie Quietly Lift Moratorium on Foreclosures.

What does this mean for the Peninsula?

If this is indeed true, the clock begins ticking again for those homeowners in the pre-foreclosure phase.  In time, if these mortgages aren’t reworked to keep the owners in their homes, another wave of foreclosed and REO properties may hit parts of the Peninsula that was just recovering from the last wave.    Considering how tough the job market currently is, I think in this round you may see some foreclosures in areas you’d least expect.

For investors, this means there may be more bargains coming on the market later in the year when this wave flushes through.

Action is better than inaction…

If you are unfortunate enough to be a homeowner in a very tough situation, the worst thing to do is to do nothing… The sooner you get conversation started with your lender, the better the chance you’ll have of hammering out a deal to stay in your home.   With all of the pressure being applied on lending institutions to work out deals with borrowers who are in trouble, one would hope this would translate into some flexibility for troubled homeowners.

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