A Hard Core House Flipper Jumps Back In

home_sales3.jpg
AP

I first interviewed Phyllis Rockower in the spring of 2005. This hard-charging grandmother rocketed around lower income neighborhoods of Los Angeles looking for ugly houses she could buy, fix, and flip. She made a killing at it. By November of 2005, she got out of the market. Rockower knew the crash would come, and it did. She's been patiently waiting for the horror of the last few years to pass.

Now she's back.

"I got back in a few months ago," Rockower wrote me. Where is she buying? Compton. "The prices at the low end in Compton have come down close to 60 percent. The lowest end of the market is the best place (for) cash flow." Rockower says she's running into a lot of other investors sensing deals. "There are many houses under $100k. These are prices I paid in 1996, and the rents are double and the interest rates are three points lower."

Here's her plan: get four loans for four homes ("Banks stop you after four loans--darn"). Three of the houses she will do a "rent to own" deal, the same program she used to offer tenants back in the boom. Tenants pay a portion over their rent toward a down payment. After a year, if they have enough money, and they can qualify for a mortgage, they can buy the house. Sometimes it works out, usually it doesn't. Rockower ends up getting to keep a nonrefundable deposit, the tenants move out as their lease expires, she finds a new tenant. The process starts over again.

As for the fourth house, Rockower has already bought it and is fixing it up to keep. "Dealing with code enforcement...is a major headache." On her Twitter pagepeople learn just how big a headache-"Found out laundry room is not legal". She will rent this home out to low-income tenants. "Section 8 (government subsidized rent) will pay me $2,200 rent for a four-bedroom. I am going to refinance, and my payment should be around $1,300." But in Compton? "Section 8 pays the same whether it is Malibu or Palmdale."

This is not a game for the weak. "If I want a deal," Rockower says, "I have to go see it the day it comes out on MLS (the listing service). The realtors are putting artificially low prices on them to get overbids."

Finally, there's financing. The days of easy lending are over. "It used to be that 'hard money lenders' would lend on the value of the property," Rockower says. "In today's market, they want tax returns, proof of funds, and a good credit report--all for the privilege of charging you 13.5 percent interest. Another problem is that the banks are not letting you assign your contract. We use to tie these deals up and then flip them to another investor. Very hard to do today."

Well, maybe that's not such a bad thing.

Check Out These Great Real-Estate Stories On CNBC.com

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com