It is noon, Sept. 29, 2009 and Jon Mirmelli is preparing to big on a house just outside of Phoenix, Arizona. In just a matter of minutes the bidding was over and Mirmelli had purchased this six-bedroom home for $486,300. Citigroup, Inc had an initial asking price of $379,900, with an original mortgage of $1.3 million on the home. In the first week of October Mirmelli sold or "flipped" the home for a profit of $203,700 above his purchase price.

This kind of flipping stopped when home sales stalled with an influx in foreclosures and slowed lending.

Like the rest of the country the "flipper" has changed with the times and now they are seeking foreclosed actions. James Hagerty of Wall Street Journal reported on a story provided by the Wall Street Journal that Barclays Capital estimates that there are 639,000 foreclosed homes currently up for sale in the United States. That equals more than 10 percent of the expected U.S. homes sales for 2009 and those properties are largely concentrated in Florida, California, Arizona, and Nevada.

In order to save the bank or lender the hassles of taking possession of a property, they now are more likely to set the opening bid or minimum bid lower than the outstanding loan amount. In the past with foreclosures the minimum was equal to the balance due, but now banks and lenders need to move the properties, even at a loss.

 

Sean Toole, the chief executive officers of FloreclosureRadar.com, a research firm, said that 21 percent of foreclosed homes in California were sold to investors rather than the lender taking ownership -- that was up 6 percent from November 2008.

So what advantages are there to the bank selling the home at a loss? Often the homes go inside unseen, you look at a fact sheet on the property but potential buyers are not able to walk through. So potential damage like the need for carpet, paint, patch-work are all hidden from the buyer until after the sale is finished.

For the bank, they get their money immediately and if it doesn't cover the balance due that is okay because they stop the hemorrhaging of future money by avoiding making repairs, covering taxes & insurance, or paying agent commissions in a conventional sale. The biggest risk for the bank is setting the minimum too low and they miss the window where they make a decent amount, even though they are losing money and they don't lose so much that they could have done better in a conventional sale.

Mirmelli says, "The banks are so screwed up." With 7.5 million U.S. homes in foreclosure or just behind on payments the banks really are fighting fires on all fronts. Often the do not have a clear idea of what a property is really worth and that is where a Mirmelli ends up with a great purchase.

Many banks consult with local real-estate agents or software to make an estimated housing value. In the end the lender is looking to, "achieve a fair value for the property and induce third-party bidders,' says Sullivan, of American Home Mortgage Services Inc.

Flippers, like Hal Feinberg, a Phoenix property investor cited that he has been selling more homes to Canadian buyers who are able to take advantage of a weak U.S. dollar.

Jon Goodman, a real-estate lawyer in Boulder, Colorado has purchased 19 properties this year and has been able to sell 11 of them. One property near Denver that he purchased left him a pretax profit of about $43,000. He had about $24,000 in expenses, including a real-estate commission. They purchased the house for $142,000 and sold it for $209,000, but only after replacing toilets, carpeting and a kitchen range.

A Miami investment group purchased a condo for $170,000 and two weeks later sold it for $330,000.

Not all stories of flipping end up in the favor of the flipper though. Because you often are not seeing the property before ownership one investor out in Phoenix purchased a property only to find out the air-conditioning unit had been ripped out, the granite counter-tops and kitchen cabinets were all removed and palm trees had been uprooted in the front yard. After $30,000 in repairs the new owner/selling actually had a small loss. Just going to show as the owner pointed out, "It's not as easy as people think."