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Flipping houses is back in South Los Angeles

Investors are snapping up foreclosed homes in hopes of making a quick killing.

April 25, 2010|Alejandro Lazo, Los Angeles Times

The musty smell of neglect greeted the two investors as they stepped past the waist-high weeds and peeling paint to cross the threshold of the latest prize: a boarded-up two-story house in South Los Angeles.

Shards of glass crunched underfoot. The men spied a shoe-sized hole in one wall and an empty can of Steel Reserve beer on the floor.

"This is not bad," chirped Robert Fragoso, complimenting his friend Olivier Clamagirand on his new purchase.

Two days before, Clamagirand paid $180,000 for the lender-owned home on Second Avenue, six blocks east of Crenshaw High. His plan is to spend $45,000 on repairs and sell the house for about $320,000.

"The key is to buy right and move quick," Clamagirand said in his thick French accent. "If you can get out in three or four months, you're good."

Flipping homes is back.

Lured by steep discounts on bank-owned properties, investors are sifting through the wreckage of Southern California's real estate bust, snapping up foreclosed homes in hopes of making a quick killing. The rapid-sale rebound comes amid a general recovery in housing prices and sales, and the epicenter is South Los Angeles.

MDA DataQuick, the real estate research firm, ranked Southern California Zip codes by frequency of flips, which it defined as homes resold within three weeks to six months of purchase. Three of those Zip codes were in South Los Angeles, and two others were in the nearby unincorporated county communities of East Compton and Willowbrook.

In Watts, about 1 out of every 6 homes sold during the final three months of 2009 was flipped, making it the neighborhood with the highest concentration of flipped properties in all of Southern California, DataQuick said.

Along with low prices, real estate investors are drawn to the area because of its proximity to the ports of Los Angeles and Long Beach, Los Angeles International Airport and other job centers, including factories.

Unlike many of the remote suburbs ravaged by the housing bust, the economy of South Los Angeles and its neighbors was never tied to housing and development. And these urban communities were largely spared the rampant overbuilding that has left areas like the Inland Empire littered with boarded-up subdivisions. Subprime lending was prevalent in South Los Angeles, making foreclosures common.

"South Central is good because it is a blue-collar area, but it is close to essentially a lot of work," said Fragoso, 38, senior vice president at financier Anchor Loans as well as Clamigirand's sometime partner in real estate deals. "It's close to downtown and there are a lot of factories and blue-collar work here."

Flipping was also given a boost in February when the Federal Housing Administration temporarily suspended its "no flip rule," which prohibited people using FHA loans from purchasing properties from sellers who had owned the homes less than 90 days. The one-year suspension was designed to give the housing market a boost.

Investors have long been active in and around South Los Angeles, but their numbers have surpassed even the boom years. The percentage of homes sold to absentee buyers in a large swath of neighborhoods, from Jefferson Park just west of USC to East Compton, peaked at 17.3% in the first three months of 2004, bottomed in the fourth quarter of 2006 at 9.4% and then hit a fresh high of 28.9% in the fourth quarter of 2009, according to DataQuick.

"People have very, very short memories and we go straight from collapse to bubble," said Leo Nordine, one of Los Angeles' top foreclosure agents. "The second South L.A. stopped crashing, we started getting 20 offers on everything."

Investors say there is no shortage of buyers.

Standing outside the open doors of a three-bedroom, one-bathroom, fully refurbished home in Compton one recent weekend afternoon, real estate agent Sonia Moncayo greeted a steady stream of potential buyers in Spanish as ranchera and banda hits played from a neighbor's stereo.

Moncayo touted the home's tiled floors and granite countertops, the tranquility of the neighborhood and the elementary school nearby. But the real selling point, she said, was the large backyard with a spacious patio.

"This is perfect for your barbecues," she said, reciting her pitch.

Antonia Villegas, 35, and her husband Pablo, 39, were among the interested visitors that day. The couple currently rents in South Los Angeles, but they want more space for their four children.

The Compton location, she said, was ideal as her husband works about a 10-minute drive away in a Boeing assembly plant.

"It is very close to my husband's work," she said in Spanish. "It is a little bit cheaper in these areas, and we are looking for an area that is a little bit more tranquil than where we live now."

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