Flip Artists : Entrepreneurs Make Science Out of Buy-Low, Sell-High

Christine Crossley loves to buy houses. In fact, she’s disappointed that she only closed escrow on seven in 1990--she wanted to buy at least 20.

What did Crossley do with her houses? Working at high speed, the former nurse renovated them and, often within 90 days, put them back on the market.

How can she fix up a house so quickly?

“I only do minor things,” Crossley explained.

“Like add a room.”

Just a few years ago, David DeShay was an out-of-work actor trying to keep busy when he put his life savings into a dilapidated house on Los Angeles’ Westside. Seven months later, DeShay sold the remodeled house--and nearly tripled his $30,000 investment.

“That profit bit me pretty good,” Deshay, 36, recalled. “I thought, ‘That’s just one house, suppose I did two, three, four houses?’ ” Last year, DeShay “did” 20 houses.

DeShay and Crossley are “flip artists,” the term real estate insiders use for investors who buy houses to renovate and quickly resell.

While the strain of remodeling just one house can be enough to destroy the average homeowner’s peace of mind, wallet and sometimes their marriage as well, flip artists tackle everything from simple repairs to complete tear-downs. Often they work on more than one property at a time.

And even the slumping Southern California real estate market presents endless opportunity to the flipper. “I really believe this is a great time to make a lot of money,” DeShay said. “My only complaint is I don’t have enough money to buy all the properties I want.”

With their buying, fixing and selling, flip artists have learned tricks that ordinary homeowners don’t know. To a normal buyer shopping for a home to live in, house hunting is a bit like dating--check out a lot of houses, fall in love with one and buy it. But for a flip artist, love has nothing to do with it.

“You don’t get emotionally involved with it, because that’s where you’re going to get killed,” said real estate instructor and veteran flipper Larry Blachman. “One of the things I stress is learning how to analyze property.”

Blachman, who taught high school for 14 years before getting his real estate license in 1980, now teaches classes on buying foreclosure properties and fixer-uppers.

“The biggest problem is, people just think ‘fixer’ means ‘bargain,’ ” Blachman warned. “They don’t put anything down on paper, and they have no idea of what they can end up spending by the time they’re finished fixing it up.”

DeShay uses research to help him buy foreclosures. “It’s a very simple equation,” he said. “What is my top end on the marketplace? What am I getting in for? How much do I guesstimate it will cost me to fix it up and carry? What will I have left over? I’ll write that up before I even see a house.”

Buying a house well below its market value is Crossley’s specialty. “I look for people who want out,” Crossley said bluntly.

After taking home a regular paycheck for 22 years, Crossley copes with her new career’s uncertain finances by “guts and fortitude. When you first get into it, the numbers can scare you spitless. I used to think $60,000 was a lot of money to make, as a nurse. Now $60,000 may not last me two weeks. But all you have to know is there’s a profit in there.”

If the on-paper analysis shows that a house has moneymaking potential and can be bought at the right price, the remodeling begins. Now the clock is running. It’s what Crossley calls “crunchdown time.”

A flip artist’s livelihood depends on returning the house to the market quickly to minimize carrying costs--the monthly interest owed on the bank loan. With no time for appreciation to wipe out overspending mistakes, every fix-up dollar counts.

Many of Blachman’s fixers have been reasonably priced, or “low-end,” homes--about $200,000. “I try to look at a house and figure, ‘What is the least I have to do to make it very marketable?’ Paint does wonders,” he said.

Blachman budgets and plots out his renovations on paper, including a generous “miscellaneous” allotment for the inevitable unpleasant surprises.

Like most flip artists, he believes in keeping a vigilant eye on workers when repairs are under way. “I am a full-time supervisor,” said the 50-year-old entrepreneur, who stays fit by working on his properties.

“Ninety percent of the houses I’ve owned, I could walk to. I’ve thrown painters out. I’ve fired people on the spot. And it’s because I was there,” Blachman said.

Workers who establish a relationship with Christine Crossley may end up with a piece of the action instead of a paycheck. “With someone I know,” Crossley said, “I’ll offer them a percentage of the house when it sells, if they’ll do thus and such part of the labor.

“Or I’ll hire them to work at a flat rate for 30 days, because I have to have workmen that are able to change with me.”

Buying a worker’s time in advance means no extra charge should Crossley decide to revise her remodeling plans. And she gets more work for the money by buying supplies herself, keeping workers out of hardware stores and on the job site.

Although she renovates constantly, Crossley has no tales of worker incompetence to tell, thanks to the flip artist’s secret weapon: networking. “A lot of people come to me highly recommended,” she said.

For the most part, Crossley uses two neutral shades of paint, bought in bulk at wholesale prices. “If I have some left over, I just take it to the next job,” she said, noting that “the colors are so mute, they’ll fit almost any color scheme.”

Crossley has shared some of her renovating expertise with Christine Callahan, a recent convert to the flipper’s trade. After 20 years as an art director for films, Callahan now cultivates a sector of the market she calls “yuppie dream houses,” homes selling for $300,000 to $400,000.

“I really have tried to set myself apart from the pack of remodelers in that I art-direct the house,” she said. “And I don’t put in cheap garbage.” Knowing that her potential buyers expect top-quality accouterments, Callahan hunts for bargains on the best materials.

In a recent Mar Vista remodel, Callahan, 42, dressed up an added third bedroom with a set of close-out priced beveled-glass windows purchased before plans were drawn for the bedroom. Then she built elegant window casings to match.

Once an ordinary 1930s tract house, the finished creation features a black-and-white motif, skylights, hidden floor safe, fireplace in the mirrored master bedroom and tiled entryway.

The deluxe kitchen is fully equipped with microwave, modular stove, instant hot water, deluxe fixtures and water purifier.

“Kitchens and bathrooms are real important to me,” Callahan said. “But I have also done research and determined that these are the things buyers most want. And as long as that goes along with my yuppie fantasies, I go with it.”

She keeps a sharp eye out for problems that make a house a poor candidate for the quick flip.

“It bothers me when I see tandem bedrooms, or if the only way to the bedroom is through the kitchen. The house can’t be in a commercial area or on a busy street, or something that has a bad termite problem. And the worst thing is when someone has remodeled badly. When I see a fatal flaw like that, I run in the other direction.

“But I get chills when I see peeling paint. I love the negotiation, and the planning is exciting too. And then to see it come together and see it work!”

At the Mar Vista house, Callahan couldn’t avoid seeing the work in progress--she lived in it during remodeling. “It was a joy waking up in the morning and making cappuccino on the toilet,” she joked. “The one thing I hate about this is that the workmen all start at 7 a.m.”

According to Callahan, being a woman flip artist requires extra vigilance, but has special rewards. “I think women are better at this than men,” she said. “Women understand how a house needs to work and flow. I don’t think men think about the ‘work triangle’ much.

“But those construction boys lie to you because they assume you’re a little sweet woman who doesn’t know any better. You’ve got to hammer away at these guys every day. And you don’t ever pay them enough in advance to where you can’t fire them.”

For novice flip artists Andy Dunavan and Dana Cook, there were no workmen to fire. At first, the longtime Venice roommates didn’t even know they were in the remodeling business. “We were going to buy a house and fix it up a little bit, live in it and split the mortgage,” said Cook, 29.

Then their tiny house overlooking a Venice park turned out to have a few unforeseen problems. Dunavan said, “Every time we tore into a wall, we found nothing--just termites holding hands.”

In short order, the two men were the owners of a very pricey concrete slab. At the same time, they lost their apartment and found themselves living on their near-empty lot.

Dunavan left his political consulting job and joined Cook, who had already quit work as a carpenter, in a desperate effort to rebuild the house. “All our waking hours were spent trying to get it done, partly because there wasn’t a comfortable place to sit,” Cook said.

“I spent weeks in Builders Emporium buying 49-cent items,” said Dunavan, 30. “I think one of the reasons people end up saying, ‘I will never do this again,’ is they didn’t spend 10 days at the beginning to plan it out. If you have a truck come in and dump all your materials on the site, you save one-third of your time.”

Running short of funds, Dunavan hit on an innovative plan for purchasing materials. “Most of this house is out of the Recycler,” he said, referring to the weekly advertising newspaper. “We were able to put in glass block and imported Italian tile that we would never have been able to afford.”

Despite the chaos of their first remodel, the pair found they enjoyed the flip artist’s independent lifestyle. “We spent six months working for ourselves and listening to rock ‘n’ roll all day,” Cook recalled. “I had no desire to start working for somebody else.”

Compared to the abstract world of politics, Dunavan found renovating offered “a feeling of accomplishment. When you stand back and look at a house that you’ve built--I’ve never done work that’s as satisfying.”

Dunavan and Cook also discovered that they had a knack for architectural design. The finished house features sloped ceilings, angled doorways, a unique tiled bathroom and an open floor plan that makes optimal use of the property’s narrow lot.

“People really liked the interior of the house, and we’d done all the design,” Dunavan said proudly.

Buoyed by the positive response, the pair borrowed from the Venice house’s equity and used it to buy a rundown Echo Park house afflicted with a bad floor plan. This time, the team defined their roles clearly: Dunavan handled planning and budget, while Cook was in charge of construction. “We’re totally computerized,” said Dunavan, who also tracked expenses for taxes.

Tax planning is important for flip artists, tax adviser Dan Koskovich said.

“If you’re frequently buying, improving, selling and reinvesting in real estate,” he said, “you risk being categorized by the Internal Revenue Service as a dealer in real estate, instead of an investors.”

The difference can be costly: A dealer is not allowed to take depreciation on property and is taxed at the new, higher 31% capital gains rate when the property is sold. An investor may depreciate property and falls in the 28% bracket.

“Three percent may not sound like much,” Koskovich said, “but if you flipped 20 houses in a year and made $40,000, you’d owe $30,000 more in taxes as a dealer.”

Small wonder that Dunavan and Cook computerized their accounting system.

“At Echo Park, it all became a science,” Dunavan said. “We tore down 80% of the house, and we lived in it for most of the construction. It was kind of rustic--we had an open-air bathroom. About 10 minutes after Dana got out of bed one morning, the entire upstairs ceiling fell in.”

While the house was crumbling, relationships with both their girlfriends were also under strain. “‘We have really, really understanding women,” Dunavan said. “But it got very old for Nina. It’s hard to live with someone who works 17 hours a day, smells bad, is covered with grease and is just like a lump.”

The solution was to bring their loved ones to the site. “Once we got through the rough construction, Karen was here painting cabinets,” Cook said. “We got a lot of opinions from them, and they started to feel more involved with it.”

Apparently, the strategy worked. Cook married Karen last August, and Dunavan wed Nina in December. Their love lives are going smoothly, but the slowing real estate market has put a crimp in the duo’s plans to flip houses full-time.

Echo Park sold, but they pulled the Venice house off the market to wait for prices to rise. Dunavan returned to raising money for politicians, and Cook parlayed his new skills into a better job in construction management. Still, the team plans to be back in the renovation game by spring. “We’re confident things will turn around,” said Dunavan.

Christine Crossley has responded to the market slump by diversifying--she’s looking into converting properties into nursing homes, and offering buyers equity sharing, carrying her own paper or renting houses that aren’t selling.

“My ads say things like, ‘Help! Please buy my house,’ ” Crossley reported, optimistically noting that “with interest rates dropping, there’ll be more people buying this year.”

Christine Callahan too is full of hope. She’s still living in the Mar Vista house she remodeled last year, but in December she bought two more houses on consecutive days. “You’ve got to be real creative about what you do these days,” she said. “But change means opportunity. I love this market. God, are there deals.”