Sept 22 2015
By James Hart
Senior Staff Writer
When Chris Underwood and Joe Scurlock of Florida’s HomeStream LLC started the year, they set a goal of buying, rehabbing and selling at least 100 foreclosure properties before Dec. 31, 2015.
They passed that milestone in June. Now, Scurlock and Underwood are on pace to complete between 200 and 250 deals by year’s end.
Nationally, the number of flipped homes acquired through foreclosure dropped in the second quarter of this year—in fact, they were at their lowest level since late 2007, RealtyTrac reported. Florida cities, however, continue to rank among the nation’s leaders for this kind of deal.
“The Florida foreclosure market has been strong,” said Scurlock, whose experience includes more than 16 years in the mortgage industry. “It’s been consistent. I know in other markets it’s tapered off, but in Florida, it’s really strong.”
The two investors have been in business together for a little over a year, but they had been acquainted for a few years before that. Scurlock was an investor who was working as a bank representative at several foreclosure sales, while Underwood was flipping about 50 to 70 houses per year.
“Chris and I were just two individual investors who had been working in the same county for five years,” Scurlock said.
By teaming up as HomeStream—and partnering with Gorilla Capital, an Oregon-based firm that offers funding and technical support to fix-and-flip operations—they’ve been able to quickly scale up their business.
“We don’t see any dry-up,” Underwood said. “We don’t see any slowdown.”
These counties are just comfortable for us
HomeStream focuses on five counties in central Florida. The area includes a mix of rural and midsize communities, Scurlock said. Tourism is a major industry, and the overall region is popular with retirees.
“Our counties are a lot of retirement, seasonal, golf course communities,” Underwood said. Because their families live in these counties, Underwood and Scurlock have an advantage when it comes to investing. “These counties are just comfortable for us,” Scurlock said. “We didn’t have to do a bunch of research about whether these counties would be productive for us.”
HomeStream’s five-county coverage area lies outside Orlando-Kissimmee, a major population center, but Underwood and Scurlock decided to stick with the outer areas because there’s less competition.
“We intentionally stay out of the Orlando-Kissimmee area because there are so many investors, and there’s a huge number of hedge funds operating in that county,” Scurlock said.
Each partner brings a different strength to HomeStream.
“Chris is really strong on doing rehabs and research on the marketplace,” Scurlock said. “I think I do a great job on the marketing side and selling the product.” Working with an outside firm like Gorilla, which specializes in scaling up fix-and-flip operations, was key, too. “They’ve let us scale up faster than most people,” Underwood said.
3 keys to foreclosure success
There are great opportunities in foreclosure properties, but it’s very easy for inexperienced investors to walk into a bad deal, Scurlock and Underwood said. The No. 1 way to avoid losing your shirt? “I’ll tell you right now: research, research, research,” Scurlock said. “You can’t overemphasize that. You really need to do your due diligence prior to a sale.”
Underwood and Scurlock have a team of four scouts who visit the properties about a week before a sale. They take photos, look in windows and gather as much information as possible for a written report on each house’s condition.
“If a house needs a roof,” Scurlock said, “we’re going to know a week before the sale.”
The team also will research whether a potential purchase has title or lien issues. The night before an auction, they run comparables on all the properties that will be up for sale. That lets them know how much each home could bring once it has been rehabbed. “Here’s what the retail value of that asset is, and we know it needs X amount of dollars in rehab,” Scurlock said. “Then we determine our price.”
The second key is building a team of hard-working, reliable contractors, Underwood said. “We’ve got a fantastic group in place, but we had to go through a lot of people.”
And finally, thanks to hard-earned experience, they possess a very clear idea of how much it will cost to fix up each property. They don’t underestimate costs that could end up erasing their margin on a deal. “At first, we would look at pictures and say, ‘Oh, that’s a $10,000 rehab,’ ” Scurlock said. “And it turned out to be a $20,000 rehab.”
Finding the right fit
While Scurlock and Underwood have been very successful, they also have had a few learning experiences along the way.
“When we first started buying,” Scurlock said, “we would buy anything that was a deal.” As long as a property had the potential for a nice margin, they were game. That led to buying some $300,000 houses, which were profitable, but also required three times as much rehab work as a $100,000 house. The high-dollar homes took longer to sell, too, tying up capital.
They decided to focus on properties that sell for $80,000 to $150,000—very close to the fair median prices for those counties, while still creating an attractive product. That means installing new flooring and new appliances.
Scurlock and Underwood post houses on their website as soon as they’ve acquired the property because real estate agents, impressed with the quality of the rehabs, closely watch what they have for sale.
Several will reach out and ask when a particular home will be available, Scurlock said. More than a few properties have been sold before they’ve been fully rehabbed.
“I don’t want to sit on a house,” Scurlock said. “When we list a house, we want it in a contract in a week.”
The good news is that demand is strong. Even though recent banking regulations make it harder for some buyers to get financing, “there are buyers out there,” Underwood said. “There’s a lot of money moving through the real estate market right now.”
While most of HomeStream’s properties are sold to people who will live in the homes, another 10 percent are purchased by property investors. Some properties perform so strongly as rentals that Underwood and Scurlock are thinking about holding onto more of the houses they rehab. “That really expands our business model,” Scurlock said.
This is going to be a great asset
Working with foreclosure properties has been profitable, but Underwood and Scurlock also are proud of their work’s impact on the community. They take houses that, in most cases, are dilapidated and sitting empty, and they turn them back into beautiful homes.
Neighboring property owners will call whenever they find out HomeStream has bought a house on their street.
“I get these phone calls constantly,” Scurlock said. “And I say, ‘We just acquired the asset. I’m going to have someone come out there this week and cut the grass, and when all is said and done, this is going to be a great asset.’”
HomeStream wants to do a great job because this is their community, too, Scurlock said.
“We take something that was really ugly in the neighborhood, and we turn it around and make it beautiful,” Scurlock said.