Flipping is back, but in a different style. A few years ago, many Americans were buying houses and condos, only to turn around and sell them for a quick profit. Home values were appreciating at such a high rate that this was possible. The game has changed drastically in the past few years.
Home value depreciation and bad loans have driven a large amount of people to foreclosure. And this has caused a huge problem for banks, because they are stuck with these houses that have lost their value – for the banks, these foreclosed houses are called toxic assets. And many banks have a large number of these toxic assets. A particular homeowner might be able to ride out this economic downturn and just stay in their home until it appreciates again. But a bank can’t really ride it out, considering they have millions of dollars worth of toxic assets. So they need to cut their losses. And that means profits for savvy investors.
Wall Street Journal Online had a great article about this new kind of flipper and how they are making profits. Here is an excerpt from it:
“Flippers swoop in at public auctions of foreclosed homes, known as trustee or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due. But in today’s market, in which many home values have dropped far below the loan balance, lenders wouldn’t attract investors if they set the minimum at that level.
So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession.”