Flipping for Profit

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Kirk Leipzig is turning foreclosed homes into cash. All it takes is legwork, a line of credit and a lack of


More From Forbes

+

Best Places to Buy Foreclosed Homes

+ Foreclosure Scams Lurking in Your Area

+ What $1M Buys in Homes Worldwide

+ Where to Find Million-Dollar Foreclosures

+ Best Cities For Bargain House-Hunters

Kirk Leipzig is turning foreclosed homes into cash. All it takes is legwork, a line of credit and a lack of emotion

Around the time his fellow Nashville, Tenn. residents are sipping their coffee some mornings, Kirk Leipzig finds himself standing elbow-to-elbow with a gaggle of bankers on the steps of the nearby Williamson County Courthouse.

Leipzig is there to scope out which banks are buying which houses out of foreclosure. Once they do, the properties are wiped clean of liens and other debts, and the bankers are often itching to unload them. Sometimes they do so right on the spot.

More From Forbes: Smart Ways to Profit From Foreclosures

That's where Leipzig jumps in. Over the past ten months the 41-year-old Waterford, Wis. native has used his courthouse intelligence, a $49 monthly subscription to listing service RealtyTrac, a title company on speed dial and comparable sales data to buy four houses out of foreclosure. He has already sold two of them for a quick $458,000 profit. As Leipzig parses through homes, he doesn't give a whit whether they appeal to him personally.

"I've seen plenty of investors go under because they fall in love with a house," he says. "I'm strictly a by-the-numbers guy. If you know neighborhoods, comps [statistics on comparable home sale prices] and do your research ahead of time, you won't lose money."

Amid the first national home price decline since the Great Depression, an estimated 2 million to 3 million homes are expected to go into foreclosure this year. Big institutions are buying them in bulk. Blackstone Group has raised $11 billion to buy distressed property. A separate private equity consortium bought 8,500 properties in April from builder Centex Homes for $161 million, which was a mere 30% of their book value.

There's still plenty of room for little guys, says Leipzig, a classic up-by-the-bootstraps entrepreneur. A high school graduate, whose father was a unionized autoworker, he worked his way up from stocking grocery shelves to being a store manager at Cub Foods in Milwaukee. Leipzig first tried his hand at real estate eight years ago, when he put down 3% of the $747,900 sale price to buy a home from Lloyd Ward, then chief executive of Maytag. Leipzig sold it 11 months later for $1.5 million. He soon quit the grocery business to trade homes full-time--and cautiously.

Sensing early last year that foreclosures were rising, he unloaded the two homes he owned and kept out of the market while researching how to buy busted properties. Late last year Leipzig scouted out two Brentwood, Tenn. homes that had been foreclosed on by First Tennessee Bank. The four-bedroom properties were appraised for $725,000 each in November. Tax records showed comparable homes selling for slightly less.

Leipzig bid $400,000 for each of the properties. First Tennessee accepted his lowball offer last December. Leipzig paid with $120,000 in savings and $680,000 from Wells Fargo (where his lofty 819 average score among three big credit bureaus garners him preferential mortgage rates). Six weeks later Leipzig sold the homes for $689,000 apiece. After broker fees, closing costs and other expenses, Leipzig netted a total of $458,000.

"Half the houses I look at you can get for 40 to 50 cents on the dollar [of the pre-foreclosure selling price], but banks are starting to think 'Just get rid of it for less,'" he says.

More From Forbes: Smart Ways to Profit From Foreclosures

The best places to start searching for foreclosed homes are Web sites like Foreclosures.com, RealtyTrac.com and Trulia.com, which link to foreclosure databases. Realtors are another good source. Calculating home values means scouring sites like Zillow.com and Eppraisal.com, as well as tax assessors' records block-by-block. Avoid neighborhoods where high foreclosure rates are depressing prices. Given how fast conditions are changing, that means spending time in neighborhoods before investing in them.

Leipzig is targeting upscale Brentwood and Franklin, Tenn., where the economy is strong, amenities appealing and schools well regarded. Two attractive larger cities are Denver, with its strong energy sector, and Charlotte, N.C., a low-cost financial services center.

Beyond buying into markets with strong long-term growth prospects, another way to cushion risk is to look for properties whose rental incomes cover mortgage and other costs. Figuring out whether that is the case involves factoring in things like mortgage payments, taxes and other expenses. However, properties are paying attractive rental yields even in some cities where sale prices have continued to rise during the broader downturn (see table).

Or you can go ultrasafe, like Leipzig. Even as he rents out properties, he keeps a five-year cash hoard in the bank. "I can hold on until the market improves," he says.

More From Forbes: Smart Ways to Profit From Foreclosures

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