Wednesday, May 23, 2007

From Flipping To Renting

The Detroit Free Press reports from Michigan. "In real estate, timing is everything. That's what David Elosegui discovered when he made an offer on the Lake Orion house he fell in love with in February for himself and his daughter. 'I went to make an offer and the bank said the house had just gone to auction,' said Elosegui, who wanted to offer Wells Fargo Bank, the home's owner, $214,000. The house had been listed by a Realtor for $220,000 but had gone into foreclosure."

"The following weekend, he walked away with his dream home from an auction of foreclosed properties conducted by the Texas company Hudson & Marshall. He had made the highest bid, $179,000."

"'It was surprisingly easy,' said Elosegui, who had been living in an apartment since June 2005. 'I knew I would be willing to bid a little higher than an investor.'"

"Elosegui is one of thousands of Michigan residents who are benefiting from a surge in foreclosures. With the 10th-highest rate of foreclosure in the country and thousands of homes to choose from, Michigan's foreclosed housing market is no longer the exclusive playground of real estate investors and buyers with marginal credit."

"Fueled by defaults on subprime loans and job losses, Michigan reported 29,467 foreclosures for the first quarter of the year. Detroit reported the highest number of foreclosures, 16,351, among the nation's top metro areas for the first quarter of this year, according to Realtytrac."

"The three-bedroom, 2 1/2 -bath, 1 1/2 -story, 1,800-square-foot home that Elosegui bought had been vacant for two years. Wells Fargo Bank took possession of it and then put it up for auction shortly before Elosegui made his offer."

"'I did quite a bit of reading before I went down there,' Elosegui said, adding that he familiarized himself with the terms and conditions of buying a house at auction. For example, he wasn't aware until after he began studying that the auction house adds a 5% nonrefundable fee to the price of each house it sells."

"Bret Logan of Dearborn has been investing in real estate on a small scale since 1991 when he and a friend bought a foreclosed house in Detroit, fixed it up and sold it for double what they paid for it. Logan bought a second property in 1997, a four-unit house in Hamtramck for which he paid $60,000. He currently has tenants in it."

"He then paid $46,000 for another foreclosed house in 1999 on Fielding, on Detroit's west side, that he fixed up and lived in. While living in it, Logan revamped the 1,100-square-foot brick bungalow. He added a new roof, updated the kitchen, and put in copper plumbing, new windows and crown molding."

"Last year, as more houses in Detroit went into foreclosure, he decided to bid on another house, this time in Dearborn. He bid $102,000 and won it. That's when he decided to put the house on Fielding up for sale for $86,000. The house was appraised at $106,000. That was eight months ago."

"Logan says the glut in houses has made it hard to get people to view the Fielding house and now he is considering renting it."

"'It's much more challenging to flip houses here than anywhere else in the U.S.,' Logan said. 'Even in the outlying suburbs, you have to be very careful about the direction your neighborhood is going. If you're trying to flip, you have to be really conservative about what you're paying and all the related costs. Costs are going up while property values are going down. It makes your return and your margins much more slim.'"

"Steven Morris of Fair Haven has been flipping houses since 2003. But when the market began to tank, he changed his approach. Two years ago, he switched from flipping properties to fixing them up and renting them."

"'What most people do when they do rentals is put in as little money as possible and try to put someone in them,' he said. 'I try to make it something I would love to live in. My goal is for my tenants to want to stay in my house as long as they can.'"

"Morris has 10 properties in metro Detroit and a waiting list of tenants to get in. His latest purchase is a house in Warren, which he is currently renovating. He bought it for $40,500 and is putting $60,000 into it, he said. He has added new appliances, granite countertops and fancy door handles."

"'I put quality stuff in them,' Morris said."

"He also hired friends who have lost jobs in the slow economy to work on the houses. He has established accounts at Home Depot for them to come in and pick up materials."

"Since 2003, the foreclosure market has provided more and more investment opportunities, he said. Foreclosed homes are going for less and less and the competition from those who could buy them with risky subprime loans has abated."

"'If you look at the mortgages that people had on some of these houses, they could move back into the same house, beautifully remodeled, and have cheaper payments than what they had,' Morris said."


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