Investors Dominate Home Flipping, Auctions

Investors Dominate Home Flipping, Auctions

Real Estate Investing

House flipping, a quick-buck scheme pursued by amateurs and professionals alike during the real estate boom, now is dominated by investors willing to pay all cash, who troll auctions for foreclosures that banks are gradually trying to siphon off their books.

This trend, which took hold more than a year ago, gained more ground last week when the Federal Housing Administration reversed a rule and decided to allow government-backed mortgages for homes sold and resold within 90 days.

Some real estate experts say the FHA change is another step by the government to help prevent lenders from sending a wave of foreclosures onto the market as many analysts have long predicted.

California foreclosure data show that the number of houses purchased by investors at public auctions statewide climbed from 833 in December of 2008 to 2,648 in December of 2009, an increase of 218 percent.

The figures, from research firm in Discovery Bay, also indicate that at December Bay Area auctions, about 2o percent of the sales went to investors rather than back to foreclosing lenders. In December 2008, that number was 3.2 percent.

The data define any property not reclaimed by the bank at an auction to be an investor purchase because auction foreclosure sales require buyers to pay all cash, something most typical home buyers cannot afford, according to Sean O'Toole, CEO of

A significant percentage of flippers from the boom times used mortgages to buy and flip homes that were rapidly appreciating, O'Toole said.

Investors dominate

O'Toole said investors are dominating auctions for several reasons, including the dearth of homes available to them on the listed market and even fewer that can be resold for a reasonable profit.

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