It’s 9:30 a.m., the worst time of the day for Griffin Group CEO B.J. Blakeley. The door to his second-floor office in a downtown two-story building on Fourth Street is open. Employee foot traffic is steady, and everyone seems to have a question. Blakeley doesn’t shy away from answers. Somehow he stays focused on the many tasks that come his way via alerts on his two computer monitors and oversize corner plasma screen.
“Cooper’s been postponed,” he says to someone in his office. “That’s a crappy house. … Nevada Ranch, that’s no good. … Peccole Ranch, I love it.” Then the enthusiasm fades for a moment. But after a few clicks, “We have a winner folks! … Double Down’s good. I like Double Down. Jimmy, send a driver.”
Jimmy, a husky bald man probably in his 40s, leaves.
Blakeley has just pounded out research on half a dozen or so properties that may go up for auction in a parking lot outside his office at 10 this morning. He’s making recommendations to his pool of 50-70 investors, and several are wanting in at various price points on certain properties.
“Watch, I’ll send a bid in right now,” he adds. He scrolls through several names on a spreadsheet, then taps out a $300,000 bid on a home he estimates is worth $800,000. The home may not even go up for auction at all or could sell for quite a bit more. But he’s ready, the information is sent downstairs to Jimmy’s laptop, where the colleague is now opening a fold-up chair near an auctioneer’s podium.
Blakeley has the manpower and technology to monitor every move at the trustee sales auction, which occurs weekdays in the downtown parking lot of the Nevada Legal News, the newspaper that publishes legal notices for foreclosure properties. The auction, for cash buyers only, is that legal step for distressed Las Vegas homes and condos before the banks actually take them over. It is what Blakeley refers to as “the last frontier of flipping,” and people like him, who have amassed the resources to look up property liens, inspect abandoned homes and assesses market values very quickly, are in demand.
“Flipping is virtually impossible to do in the retail real estate environment,” adds Anthony “Tony” Martin, owner of LVDefault.com, another resource that provides information for investors looking at auction properties.
Martin says banks learned their lesson from the 2008 crash, when too many properties were on the market at once, prompting a steep drop in pricing. He says, now, they are “spooning” houses onto the market to keep supply low, stabilizing prices but making “deals” tougher to come by.
“There are really no [bank-owned deals] to be had,” he says. “Banks are holding everything. These auctions are the only way to do this. [Banks] are trying to wait out the storm.”
But it’s a storm that will not likely end anytime soon. Martin wouldn’t give specifics, but says he’s learned through his banking industry contacts that there is a “staggering” number of defaults and foreclosed homes that the banks are sitting on, a number so large, he says, it would prompt political intervention if it was revealed.
Locally, Blakeley estimates about 600 properties are scheduled for sale each day at the trustee auction. About 10 percent actually go up for bid and only a handful of those are worth it, he says.
Outside, an hour later, a dozen properties have gone up for bid. The crier doesn’t have a microphone, but she’s easy to hear under the three-car canopy where 40 or so potential bidders are seated. They’re equipped with fold-up chairs, laptops and notepads.
At this auction, all of the properties have gone back to the bank.
Flippers say a 10 percent profit in 120 days is reasonable, if you do your homework. “There are 10 ways to die out here,” says Lorren Stiles, head of investor relations for Horizon Realty Group. Stiles, who has been buying houses at trustee sales for eight years, rattles off a couple of the big ones: not researching liens carefully and underestimating a property’s damage.
But the kiss of death is “buying a second,” or second lien position. In other words, a bidder will buy a home for what appears to be a great deal, but the money is only going to pay off the second loan, not the first. That first loan must be repaid before the home can be sold to someone else. What appears to be a $100,000 gain could easily become a $100,000 loss, if not more.
“I’ve seen amateurs get scorched in this place” says Mickey Griffin, managing partner with Progressive Real Estate Investments. “If you’re coming in here with your last few hundred grand in savings, forget it.”
Griffin has been buying trustee sale properties since 2003 and always has 30 homes in his portfolio; 10 being rehabbed, 10 for sale, and another 10 in escrow.
Still there are amateurs here who are trying their luck, and some are seeing modest success. Carmen Marcuccio, 31, just purchased a North Las Vegas home for $111,000. He looks nervous handing over a cashier’s check and putting receipts into a blue deposit envelope with the name of his family’s LLC on it. He plans to flip the home and is mum on too many details. Marcuccio, who is using some family savings, buys about one home a month and knows very few people at the auction.
Marcuccio befriended a man named Ritchey, who sits under the canopy and bids for him while he paces in another area of the parking lot.
“People think auction property is a great buy,” says Marcuccio, a former rental-car salesman. “But that is a huge misconception. You need to be prepared.”
Spotting HOA liens, for example, is one area where amateurs trip up. Blakeley gives an example where he thought the HOA liens on a property, after calculating the monthly dues and other fees, would be about $900. The bill was $3,600. He refers to HOA collection companies as “legalized extortion.”
Of course, there’s another side to that story as well. David Stone, president of Nevada Association Services, a local homeowner association collections agency, says flippers don’t understand the costs his company incurs when taking on a collections account. Abiding by the Federal Fair Debt Collection Practices Act, for example, necessitates keeping a staff of more than 20.
“It’s ironic that [flippers] are complaining about fees when they’re making a boatload of money,” he says. “The liens are statutory public record, there really is no surprise here. I don’t know what their gripe is other than they feel they’re paying too much. Conversely, I think they’re making too much.”