Firms replacing flippers to make homes move-in ready

Source: The Business Journal
Written by Chuck Harvey

From holes in walls to missing stoves and soiled carpets, many of the new homes that come on the market are far from move-in ready. Former homeowners have been especially rough on foreclosed homes, often leaving the homes in serious need of repair. Ads for such homes often characterize the dwellings as needing TLC (tender loving care) and some elbow grease.
However, not every new buyer is gifted in the art of home repair. That’s where a new breed of home flipper comes in. They must know home repair or have a partner from the construction industry. The high numbers of foreclosed and damaged homes put on the market in recent years has given rise to flippers specializing in bringing homes up to move-in condition. The number of such flippers grew steadily from 2008-2009, but has now declined some because of fewer foreclosures on the market and higher price tags on homes for sale. Still, it is a lucrative and highly competitive business. The National Association of Realtors reports that more than 50 percent of today’s homebuyers are first-time buyers. And a Coldwell Banker survey found that most first time buyers are no longer interested in fixer-upper homes requiring TLC. Rather, 87 percent of the first-timers want move-in ready homes. And they want the job done right. So many of the individual flippers buying fixer-uppers have been replaced by larger home repair and resale companies that have the crews to do multiple home projects simultaneously. They tackle projects like replacing bathtubs, putting in new light fixtures, laying tile floors, replacing missing chandeliers and installing granite countertops. The most basic jobs are replacing carpet and painting the walls. But many of the homes will need more work including fixing air conditioners, roof repairs and replacing damaged concrete. The repairs can boost the initial sales price of the home by $50,000, depending on the neighborhood. But the main thing for the repair flipper is to pay for the work and materials and turn a profit. That often starts with a bargain auction purchase on the steps of the city courthouse. “They bid and they flip,” said Dan Hawkins, a broker-agent for Realty Concepts in Fresno. “It’s been very common the last two or three years.” Many of the homes are purchased with cash, Hawkins added. And most of the money for the purchases comes from investors, he said. Some of the investors have run into problems with homes not appraising for the price that is necessitated by the repairs and replacements. That’s where repair flippers must do their homework. The successful ones buy homes in sought-after areas. They also figure out approximately what the assessed value will be by comparing prices of other homes up for sale in the same area. That is the strategy of Anthony Hageman, partner with Gold Leaf Capital, which supported by investors, buys, repairs and improves homes before they are put back on the market. Hageman was formerly in the mortgage business. Now he works with a construction partner to fix multiple homes for buyers who want move-in ready homes. Gold Leaf Properties sells the homes. Hageman currently is in the process of repairing 33 homes. “I’ve been doing this for a year and a half,” Hageman said. “We are one of the top companies volume-wise now.” Hageman said that back in 2008, only two flippers did home repairs in Fresno. “From 2010 to 2011 there was real competition,” Hageman said. Initially amateurs came in and did shoddy work in order to make a fast buck, he said. “They messed it up for the professionals,” Hageman said. “Those guys are going away.” They’ve been replaced by large firms like Gold Leaf and Michael Osborne’s MRO Investments, which is reportedly the largest direct seller of renovated and remodeled real estate in the San Joaquin Valley. Both companies repaired hundreds of homes in 2012. Hageman said work to bring a home up to move-in ready condition takes about 10 days. That includes painting walls, replacing carpet, laying hardwood floors, replacing sinks, putting in new windows, rewiring and replacing missing appliances. Gold Leaf Capital operates in a competitive market from Chowchilla south to Visalia. Ken Neufeld, agent with London Properties in Fresno, agreed that competition has become more intense among flippers. “But if they buy right, they can come out right in the end,” Neufeld said. Once they fix a home and put it on the market, they usually receive multiple offers, he said. If the flipper turns fixes the home and sells it within 90 days, then the bank needs two appraisals on the home. The flipper pays for one appraisal and the buyer pays for the other, Neufeld said. In addition, a bank loan underwriter asks the flipper what kind of work was done on the home. That helps establish what the improvements were, but it is important for the buyer to get a general inspection on the home to ensure it really is in move-in condition, Neufeld said. Don Scordino, agent with Realty Concepts in Fresno and regional chair for the California Association of Realtors, warned that as with any contractor, buyers must be careful when purchasing a repaired, “move-in ready” home. “Some do an outstanding job and some try to put lipstick on a pig and expect to make a high profit,” Scordino said.

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