Gorilla flips ‘zombie’ homes as market rebounds
With prices rising at the fastest pace since 2006, the quick resale is back
John Helmick loves to buy homes reeking of cat urine and doesn’t mind if they’re infested with rats, bats or bees.
His 7-year-old Gorilla Capital seeks out some of the most distressed properties to avoid competition and get the best deals, then sells them 60 to 120 days later after major renovations for an average 13 per cent return. After flipping 400 homes last year, he expects to sell 500 in 2013 in eight states across the United States, making the Eugene, Oregon-based firm one of the largest companies of its type in the U.S.
“There are a lot of people in this industry who are looking to do nothing, or just buy paint and carpet, and those homes are much more competitive,” Helmick, 54, said. “The homes we’re buying, a lot of people won’t even touch them. They are not financeable.”
With prices rising at the fastest pace since the realestate peak in 2006, buying and selling houses within six months, or flipping, is back in vogue. Those types of deals are on track to hit a record this year after increasing 19 per cent in the first half of 2013 from a year ago, and are up 74 per cent from 2011, according to data from RealtyTrac. Profits are also climbing to the highest in seven years, with investors making an average $18,391 on each sale, more than triple returns in the first six months of 2012 and compared with losses of $13,206 two years ago.
Investors are selling into a market teeming with privateequity firms building largescale rental companies and potential homeowners trying to take advantage of mortgage rates rising from record lows — all while the number of homes for sale fell in January to the lowest level since 1999.
Real estate professionals and amateurs jumped into flipping by the thousands before the housing collapse, artificially inflating demand as U.S. home prices doubled as measured by the S&P/Case Shiller 20-city index between January 2000 and July 2006.
As the market peaked and then tumbled, the flippers were stuck with properties that were dropping in value and were among the first to walk away. About 7 million homeowners lost their properties through foreclosure or by selling for a loss since 2007, RealtyTrac data show.
When Helmick started Gorilla Capital in 2006 with Ben Bazer, 36, who grew up buying homes with his father, the industry was comprised of mom and pop investors with a local focus.
People competing for inventory at foreclosure auctions were “a bunch of monkeys,” said Helmick, who along with Bazer wanted to be “the gorilla” any buyer would have to outbid.
Gorilla Capital sells at least half of its properties to firsttime buyers, many of whom don’t have interest or the financial means to buy a distressed house and rehabilitate it.
The firm purchases properties for an average price of $120,000 and spends $30,000 to $100,000 on renovations before selling them, Helmick said. About half the homes the company buys at foreclosure auctions have been abandoned.
“They’re zombie homes,” Helmick said. “We’re taking some of the ugliest, worst homes in a neighbourhood and remodelling them and, in that, revitalizing the neighbourhood.”