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Charleston Regional Business Journal 2012

COVER STORY: "House Flippers Buy, Resell Toxic Assets"

by; Lauren Ratcliffe

featured; Chris & Dawn Marquez


Charleston Business Journal Dawn & Chris Marquez House Flippers .



Charleston Regional Business Journal
November 2012
"House Flippers Buy, Resell Toxic Assets"
By Lauren Ratcliffe

A locksmith’s drill bites into a door as he changes the deadbolt on the front entrance of a duplex in Park West while Chris and Dawn Marquez wait to enter their new condo.

When the couple bought the property they didn’t receive a set of keys.  They didn’t even receive their title immediately.  Chris and Dawn bought the property at a foreclosure auction sale at the Charleston County Courthouse.  When they stepped inside the condo, the pair breathed a sigh of relief.  It looked like a good pick they said.  “This could have been a lot worse,” Chris said as he looked around the first floor of the duplex.  “This is a win, especially if those appliances work.

With a dozens dead cockroaches scattered on the living room floor and living ones scurrying about the other parts of the house, the Marquezes were thankful there was no structural or water damage.  “The biggest fear when you walk in a home is you’re looking for physical damage,” he said.  “I’m not talking dirty people but people who abused the house.

Before a new owner can even step foot in a home purchased at an auction, several weeks of waiting, bidding and research typically occur to ensure, as much as possible, the safety of the investment.  The Marquezes only started flipping auction properties one year ago, after having experience renovating properties for rent and flipping a handful of other properties {including James Island}.  Flipping is the process of purchasing restoring and reselling a property quickly – ideally in a three month timeframe.  “We have other condos we’ve rented, we just chose not to sell them,” Chris said.  “It’s all the same.  You find a cheap house, clean it up and rent it.  Flipping an auction was going to the next level.

Purchasing homes out of foreclosure helps remove the toxic assets from the bank roster and helps the housing market improve.  When a flipper buys a property at auction, they typically resell it at a much higher home price, helping maintain the home values in the neighborhood.   Since 2008, sales of foreclosure properties in Charleston County have risen from 410 sales to 1,075 sales in 2010.  During the first half of 2012, 670 foreclosure properties have been sold.  It is unknown how many have been sold to flippers.

Extensive Research

Before either Chris or Dawn goes to the courthouse to bid on properties Chris researches everything he can about what is available.  He finds the properties that will be appearing on the Master in Equity auction list and narrows his targets primarily to Mount Pleasant single family or condominiums.  For their property in Park West, the Marquezes paid $113,000 for the property.  They expect to pay about $5,000 for repairs and a lien levied by the homeowners association.  Depending on what they find, the couple will list the property.

He then digs to find out what banks are planning on bidding for the properties, and how much the judgment is for.  He also uses his wife’s knowledge as a real estate broker to estimate how much they might be able to sell the property.  “If I know the bank is going to pay more than the property is worth, then I don’t need to know if there are any liens on it,” he said.  “It doesn’t matter if it has problems, it doesn’t matter if it falling over – I’m out.”  To find how much banks might be willing to pay, he sometimes follows information available online.  Other financial and paperwork-related information is available through county government websites.

Research to find out what mortgages, liens and fees might be associated with a property is critical, Marquez said.  It’s also something he didn’t do with the first property he bought.  “We did some really foolish stuff on our first property,” he said.  “We had no idea about paperwork and liability that could have been involved with an auction property.  We didn’t know if there were liens or tax problems when we got it.  We were lucky.

After that first purchase, the Marquezes have found a rhythm and are typically able to turn around properties quickly.  They also have their budgeting down to a science and barring unforeseen conditions in the interior of the house, are within a couple thousand dollars of their estimates.

Like Christmas Morning

Going to a property for the first time is full of anticipation.  Marquez said.  A new owner never fully knows what they’ll find when they unlock the door.  “It’s a lot like a kid at Christmas,” he said.  “It’s like opening a present to see what’s inside.”  One risk associated with purchasing foreclosure auction property is the inability to inspect it prior to sale.  “You cannot go inside,” he said.  “So you have to gather as much information as you can from the exterior and asking the neighbors.

Chris said he’ll walk around the property to inspect the siding, air conditioners and roof, and he checks to see if he can peer through the blinds to glimpse the interior.  He’ll sometimes leave the doormat propped up on the door to check if the home is occupied.  “For instance if someone is living in the house,” he said. “If it’s an owner who is there and they are days away from being foreclosed, and they aren’t leaving, you are dealing with someone who is in denial.

Dawn said one of their recent properties in Park West had a women still living inside.  She had advanced warning of when she was to move out, but when they arrive to see the place she was still there and had a full meal cooking in the kitchen.  They had to call the sheriff to execute the eviction.  “It was weird,” she said adding that a man and his children were also there.  “You feel bad removing the people’s things in front of the children.

After the locks have been changed, the Marquezes call in contractors to do the repair work needed in order to get the home ready for the market.  They said they spend average of between $5,000 and $15,000 depending on what needs to be fixed.  Typically, the pair tries to resell the property for 20% more than they paid to purchase and renovate it.  But they are facing competition and a shifting market in trying to both purchase the properties cheaply and resell them for a profit.

I see a lot of new faces,” Marquez said of the auction room.  “I see a crowded room and people who have been doing it longer than use are leaving frustrated.”  He already expects that about two-thirds of the properties being auctioned will go back to the banks and the remaining properties are either ones that no one will bid on or properties many buyers will be interested in.

Usually when there is bidding especially on the homes below $300,000 you are not likely to be the only bidder,” he said.  The two said that while it’s hard to tell what the foreclosure market itself is doing there’s still money to be made.  “Housing is getting better, but anything priced $250,000 or below is flying off the market,” he said.

For more information and photos, visit www.charlestonbusiness.com.

Reach Lauren Ratcliffe at 843-849-3119 or lratcliffe@scbiznews.com

Reach Dawn & Chris Marquez at 843-642-6655 or marquez@buysellchs.com