PERSON OF THE WEEK: What would possess a successful commercial real estate broker to rush aggressively into house flipping? In his autobiography, ‘The Flip’ (published by Tate Publishing & Enterprises), D. Sidney Potter recalls the giddy highs and harrowing lows that accompanied his flipping strategies. MortgageOrb spoke with Potter about his adventures as a professional house flipper.
Q: How did you first get into flipping? And what were your thoughts about flipping before you first became involved?
Potter: In terms of how I got started: By happenstance actually! Like most Southern Californians looking outside of the main core of city living and/or living at the beach for a place to buy a home, I headed eastward towards Riverside County, about 60 miles due east of Los Angeles. The house I put under contract in 2002 went up about $80,000 before it received its certificate of occupancy. It was a classic moment! A light bulb went off in my head, and from there on, I started buying tract homes.Â
In terms of my real estate background, I started selling shopping centers in the 1990s for Marcus & Millichap Commercial Real Estate Brokerage, and that's really where I honed my chops on real estate product. As a result of my link to the real estate industry (my Dad started out as a broker in 1968), I've always had a soft spot for flipping – so long as it's done responsibly.Â
It was kind of like, ‘Don't Drink n' Drive’ – in flipping, don't over reach beyond your own financial means. It also pays to ‘buy low, sell low’ – so as not to corrupt a market's equilibrium.
Q: What kind of profits and losses did you rack up during your flipping period?
Potter: At my peak, the profits were in about the $1,500,000 plus range in a matter of a few years. Later on, though, the losses were so large that they eventually led to a $1 million to $10 million bankruptcy – which, by the way, is a great financial management tool if you ever find yourself face to face with the grim reaper of financial doom.
Q: In writing your book, what are the key messages that readers should absorb?
Potter: Know your limits, and don't overreach. Prudence is underrated. Make sure it becomes your mantra (and priority) when buying real estate.
Q: In your opinion, what role did flipping play in the creation of the housing bubble and in the subsequent collapse of the housing market?
Potter: Surprisingly, flipping did not play as an intricate part of the housing bubble as the American public was led to believe early on.Â
In 2007 and 2008, when the foreclosures really started to happen (and by the millions), about 90% of the foreclosures were attributed to primary home buyers. Those stats are verifiable not only through the Mortgage Bankers Association, but also Fannie Mae, the U.S. Department of Housing and Urban Development and a handful of think tanks. Investors were just an easy target.
Q: Do you believe that flipping will make a comeback – or has it ever really disappeared?
Potter: Of course it will. It's only a matter of time. Keep in mind that there are at least a dozen markets out there that are kicking out 12% to 15% per annum in appreciation. On a $300,000 new tract home, that's a potential $30,000 to $40,000 profit on a one-year build-out time.
