BusinessReport.com

Credit crunched by the subprime mortgage mess, area flippers say they’re seeing lots of interested buyers in their properties but a lot fewer of them who can qualify for a loan.

While foreclosures rising nationwide would appear advantageous to a flipper (someone who buys a “fixer-upper,” renovates it and sells it quickly), John Ouellet, owner of J3 Home Buyers in Baton Rouge, says that’s not the case. He’s concerned about flipping these houses because it’s getting harder to find buyers who can qualify for loans in his market, which is houses for $100,000 or less.

Ouellet is about to put a house for sale, but his real estate agent has already advised him that a neighboring location he recently handled took four closings before it sold. To deal with the market change, Ouellet says he’s turned two of his other houses (sold to him by other flippers who didn’t want to deal with major rehabbing) into rentals.

The subprime pinch comes on the heels of Hurricane Katrina’s lingering market rush for houses, which made it difficult for flippers to find properties in their price range.

“Because of the hurricane, people are putting their property up for sale in any condition and it’s pretty much selling,” Ouellet says. Before Katrina, he says he could ask his real estate agent for a house to flip and get 10 prospects the next day. A month ago, when he posed the same question, his agent announced there wasn’t anything out there.

“It’s going to be down for a while and get real soft,” he says of the local housing market. “I think it will come back in a year or two, but I don’t think we’ve seen the bulk of the foreclosures that will be out there. After the storm, banks were hesitant to foreclose, but that’s changing.”

In the meantime, Ouellet is scouting New Orleans as a possible new market, where he’s told he can quickly flip properties in the $175,000 to $225,000 price range.

Sinjin Ty Rhea, who owns the Kopfjaeger Group and has flipped houses in Baton Rouge since 2005, says it’s also why he’s securing properties to flip in high-foreclosure markets like California and Washington, D.C., until the local market improves.

“I have to step my game up,” he says, echoing Ouellet’s difficulties with finding qualified buyers. “I have to jump up into the next level, which is homes above $100,000,” that he says will appeal to a middle-class working couple with comfortable incomes and good credit.

Part-time flipper Jeff Tate, who has also focused on rental properties, says a house he recently flipped had five closings fall through before it sold. He’s concerned about how long it will take to sell his next property that’s about to hit the market.

“At one time, they threw money to people and now it’s getting harder for even people with good credit to get loans,” Tate says. “In two years, the entire country will be flooded with repos, similar to the savings and loan mess.”

Katrina’s house rush will ease Baton Rouge into a soft landing, he says, but he also predicts it’ll be more of a renter’s market, rather than a seller’s market, for the next five years.

Chris Riché, who owns Marion Group and flips properties in the $100,000 to $150,000 price range, says he’s also observed a market slowdown in the last two months because of nervous lenders tightening on loans.

“I’m not getting less for a house, but it’s taking a little longer to get a qualified buyer,” Riché says. A house that took 30 days or less to sell now takes about 60 days.

Despite his concerns, he remains optimistic about a quick comeback because the local housing market is still more undervalued than others in the country. He is equally encouraged by the robust number of people still trying to buy property, although they’ll likely have to make adjustments to get a loan.

Flipper Rickie Hamilton says he’s staying in the local market by buying adjudicated property—land that has been seized for unpaid taxes—even though it’s a complex process that can take up to six months. He resorted to these properties after Katrina and now he’s also begun to see fewer buyers qualifying for a loan, which also convinced him to turn more properties into rentals.

“When Katrina messed up flipping, I went to adjudicated properties,” Hamilton says. “It’s part of the business, you have to diversity per market demand and supply. Without a plan, you won’t be successful in this.”