Palm Coast, FL – March 1, 2013 – There's a big difference between real estate investors and speculators. Speculators tend to be trend driven, trying to jump aboard the latest gravy train. They are the real estate equivalent of the day traders who fueled the .com bubble. Speculators were just as responsible for the real estate bubble as the politicians, Wall Street bankers, developers and the crooks who took advantage of lax oversight.
But there were real honest to goodness investors in the mix as well. They carefully evaluated each opportunity and executed a plan that promised a reasonable profit at minimal risk. They knew what they were doing when they went into the investment and they knew how they were going to get out. Their decisions were based on something more rational than the "fool born every minute" strategy.
Though prices for Flagler County homes have only recently begun to show signs of upward pressure, there are folks who saw opportunities as early as 2010. I've been watching more than a handful of individuals and groups that are culling the foreclosure or short sale market. They identify opportunities and step into the foreclosure cycle where the lenders and others are unwilling to tread, finding diamonds in the rough.
There is risk. Buyers at foreclosure auctions and tax deed sales need to have a firm grasp of the legal pitfalls and do their homework before buying a property "on the courthouse steps." They should search the title and view the property. I once witnessed a pair who thought they were bidding on a marina condominium. The property they bought was a boat slip. There are hundreds of anecdotes of buyers finding out that the property they purchased had an IRS tax lien or other title problem.
Here's the scorecard of just one investor. He lives in Palm Coast. Since late 2009, he has been involved in the purchase and/or sale of over 20 Flagler County homes; all through Certificates of Title issued as a result of a foreclosure sale.
This investor is a Palm Coast resident. I've identified 17 homes he bought and resold since late 2009. The gross profit on these transactions is nearly $600,000. Each home sold for more than its acquisition price. Of course transaction costs were associated with each transaction as well as likely refurbishing costs. But there were no gross losses. The smallest gross gain was $15,900. The largest was $53,000. He is an investor, not a speculator.
Another pair of local investors have pooled in 20 flips during the past 13 months alone. Their gross gain is just shy of $1.5 million.
On the other side of the coin, the crooks are still taking advantage of lax oversight of real estate transactions. Those who gamed the loose lending and appraisal guidelines during the bubble are now milking the distressed property market.
I've heard of incidents where agents suspect their buyer's offers were not presented to the seller by the seller's agent. They suspicions were fueled when the property subsequently sold to a buyer also represented by the seller's agent. In other words, the agent received both the buy side and the sell side of the commission.
Another agent reports that she was listing a vacant property previously listed by another agent. When she met the seller at the property for a walk through, they discovered the previous agent had installed a tenant (without the owner's knowledge). Tenants should be cautious. Make sure your lease is signed by the owner.
Then there's the condo owner who does not pay their lender or their Condo Association assessments while they continue to rent their unit, pocketing the entire amount. Under newly passed legislation, Florida associations can intercede by requiring the rent check be paid to the association. The association can apply the rent against the owner's account until the account is current. Meanwhile, the law prohibits the owner from evicting the tenant for non-payment.
Valuation fraud is the key to the short sale scam. Agents lowball the estimated value of a short sale property to the lender. The bank approves the low-priced sale to a straw buyer who is working with the agent. Meanwhile, the agent has a real buyer in the wings willing to pay "market price." A subsequent sale is quickly orchestrated from the straw buyer to the real buyer. The bad guys split the difference.