Buy a down-at-the-heels house from the bank that foreclosed on it, do some quick work to make it presentable, and sell at a big profit.
Sounds simple, right?
Those in the industry say there’s money to be made but a lot of ways to lose money as well.
The rush to rehab peaked last summer, said Courtney Neuhausel, president of Fort Myers-based Sandbill Homes, which specializes in rehabbing houses and selling them.
Back then, he said, “Every Tom, Dick and Harry was getting in. You saw some guy making 20 grand and everybody and his mom thought they could do it.”
That was before concerns about the validity of foreclosures by the big banks swept through the housing market.
Many properties for sale by lenders were abruptly pulled back and the number of foreclosures dropped sharply. Buyers became scarce.
“What happened was, most of my competitors got scared,” Neuhausel said. “They were not funded in-house but with investors. When the properties weren’t moving in November and December, we saw a majority of our competitors liquidate their inventory. We decided to ride the storm out and not give the store away.”
Now, he said, with foreclosure concerns fading, money can be made again.
But even in a generally favorable market, there are a lot of reasons not to get into the rehab-and-sell-for-more business.
Thomas Bruzzesi, owner of Thomas Realty in Fort Myers, said he used to buy and rehab houses for resale but now finds it less risky and more profitable to just buy a house at a bargain price and sell it for more as quickly as possible.
Often, he said, the buyer is someone who wants to do the work himself anyway if the house is in ill repair.
Time is of the essence, he said, because prices are so low in many areas that it doesn’t make sense to spend money rehabbing. “You buy a $20,000 house in Lehigh Acres and put $20,000 in it, and it’s not making sense” because even the fixed-up house can’t be sold at a profit.
Instead, Bruzzesi uses his skills scoping out houses that are being sold at public auction after the lender has foreclosed.
For example, he spotted a house that was attracting little interest because it appeared to have Chinese drywall. When he was able to determine it didn’t, he was able to buy it at a deep discount and resell for a profit.
“I bought it for $39,000 and sold it the same day for $46,800,” Bruzzesi said.
Attention to the market is one thing most rehabbers agree is crucial.
Neuhausel said he’s had to change his business model to go after more expensive homes.
The economies of scale are a factor, he said: “If I have an $85,000 house, I can make 10 percent on it, but if the air-conditioning unit outside gets stolen, that’s three grand. They don’t make that brand anymore, and I have to change things inside too. Next thing I know I get a call from an appraiser from Miami. He’s never even been here and he cuts my appraisal $3,000.”
In that scenario, Neuhausel said, his profit essentially evaporates even though the house could theoretically be flipped for a profit.
As a result, he said, the low end isn’t the dominant factor in Sandbill’s business that it was when the company started up a little over a year ago.
“We’re focusing on houses anywhere from $80,000 to $300,000” with occasional excursions to higher ground, Neuhausel said. “You’ll see houses we rehabbed in Cape Coral sell for $799,000.”
