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Jim Klinge, broker-associate
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Encinitas, CA 92024
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Jim Klinge
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Posted by on Nov 25, 2009 in Buying at Trustee Sale, Flips, Jim TV, Thinking of Buying? | 37 comments | Print Print

Adam Rappoport 1

Most of you know Adam as ‘SD Realtor’ from Piggington’s blog where he has been a valuable contributor for years.

He has been flipping properties this year, ones that he purchased at the court house steps.  He was nice enough to share some of his thoughts and what he’s learned along the way.

Here’s Part 1:


  1. Ahh yes, my thwarted attempts at buying at the Trustee sale to make a quick buck has been gnawing in my gut for months.

    Now, my man Adam is being showcased in how to get it done at the courthouse steps. That’s right boys, just twist the knife a little more to make me really feel left out and on the sidelines!

    Oh and by the way, has Adam entered into the witness relocation program or what? I hope he gets some face time to take a bow in part 2.


  2. Video’s posted over on CR. Comments aren’t the friendliest.

    Just sayin’.

  3. What time of day was that, seems a constant flow of traffic. San Diego is beautiful, but people seem to spend most of their time in a car. Too spread out for proper public transit. Too many people want to live there.

  4. Looks like all the Micheal Moore wannabees are over at the CR message boards. Why do they care what the flipper makes or how he makes it? The only person losing out is the buyer. Instead of going to the courthouse, he buys from the flipper. In return he doesn’t have to deal with courthouse, previous tenants, owners, and other unknowns. And he doesn’t mind paying extra for this convenience. Everyone’s happy.

  5. If I understand correctly – Adam is taking on the risks of getting clean title. Not as big a risk in a non-improved house like the one in the video. (no mechanics liens from contractors if no work was done.)

    That alone is what would keep me from buying on the courthouse steps.

  6. As much as I don’t like flippers, I do like SDR. 🙂

    IMHO, he’s not trying to gouge the new buyers as much as other flippers, and it’s a pretty fair price for what it is (road noise, notwithstanding). My spousal unit was watching this with me, and we both agree that the layout is actually pretty nice. We like the downstairs master and…we like the linoleum! 🙂 Some of us would prefer a decent price to kitschy “upgrades.”

  7. The flipper is not some kind of new entity that was invented in 2000 to cause the financial crisis. They’ve always been around, people who have the means and are willing to take the risk of rescuing distressed properties. It’s a job someone has to do, and it’s not for the faint of heart. You have to be prepared to play both ends of the boom and bust cycle and do it wisely if you don’t want to crash and burn.

    Flippers didn’t cause the housing bubble, starry eyed buyers with access to free cash did.

  8. Adam was willing to go public with his story in a very humble way – there wasn’t a hint of arrogance.

    I feel bad for him – I asked him to help me, help you, and this is what he gets. All anonymous cracks too.

    While I’m at it, I’d like to acknowledge those on the blogs who aren’t anonymous: Adam Rappoport, Robert Cote, Rich Toscano, Kelly Bennett, Schahrzad Berkland, Kris and Steve Berg – people who are willing to lay it all on the line, publicly.

    You have my respect.

    Jim Klinge

  9. I’ve appreciated Adam’s contributions over at Piggington over the years, and I liked his narrative of how things had worked out with that particular property.

    The market found a correct price for a house with a now clean title. I feel what he did was fair, and at a reasonable price.

    Do I wish I had access to that sort of capital so that I could purchase something at a substantial discount and stop renting? Sure, but that’s not terribly realistic for me and comes with other headaches associated with foreclosures.

    Personally, the flippers that I have a problem with are those who try to gouge buyers or add huge markups to cosmetic improvements to try to create questionable ‘value.’ Clearly, this is not what Adam has done here.

    Enjoyed the video. Thanks!

  10. Where are the republicans? What is wrong with making a buck. The guy seemed humble to me, hope he comes back in the future! Good job JtR.

  11. I’ve said it before, I have respect for people that put in this type of work to make a buck. There is a huge convenience to the loan/escrow process over buying for cash at the court house steps. Many good flippers (such as those featured a month ago) are able to do the upgrades much cheaper than most homeowners could as well.

    Anyways when you’re adding real value to the house (either taking the risk at the courthouse steps, or fixing up a house most people wouldn’t touch) then I’m perfectly fine with the money. In this market the amateurs who don’t know what they are doing will lose their shirt.

  12. Just to be clear, Jim: the anonymous “cracks” aren’t happening here.

  13. Hi guys –

    Thanks for the nice comments. Just a few other comments to give you guys some insight. Like most of you I feel penalized for living within my means. I have rented and rented and saved a couple hundred k earning a whopping 2% in cds. This money has always been earmarked for a home to buy. In late 2008 a former client asked me what I thought about trying to purchase at trustee sales. I told him I thought it was a good idea but the inherent risks scared me off. By the end of 08 I saw pricing in the areas I wanted starting to come within reach however I noticed inventory sucked. Fast forward to May of 09 and I was pissed. Not only had inventory deteriorated more, but pricing had bounced. I watched things slip farther away. I called that same client and asked him if he was still interested in trustee sales. He said yes and we met with another former client of mine and formed an entity. Our goal was to flip properties, we had a small group and each of us put in a substantial capital investment. Our strategy is to be very quick, buy and sell quick. If it means we take a lower return then so be it. We feel that the market is hot but VERY unstable and all it will take to turn get the market to rollover will be an interest rate hike.

    We have learned alot over the past 6 months. It takes alot more time and effort then we thought it would. We have been incredibly fortunate to not have gotten stuck with a clunker yet. There are so many big players at the auction with vast resources. Watching the margins shrink has been pretty scary. I cannot tell you guys how many bids we have lost out on. Even some of the ones we one have given us sleepless nights. I am very much a novice at this but learning some of the nuances. The other two investors have been invaluable. I am simply one of three and each of us do alot of work, none of the three is more valuable then the other.

    At one point early in the process I was thinking of taking on some more investors. I notified a few fellow posters of the opportunity and they were very interested. Additionally many more of my own clients and some of the guys I play hockey with wanted in as well. Unfortunately I just did not have enough time to follow through with it. Between my own brokerage, and my participation in the primary group, getting yet another one together would just spread me to thin. So for those of you who talked to me about it, I am really sorry for not getting it arranged for you.

    How much longer will we do this? As long as the market will support it. Some posters come down hard on flippers and such. CAR is a fabulous poster and we have debated about it before. I respect all opinions and am always up for good debate. I can say that the properties we buy are priced to sell, hit the market quicker then any REOs, and the BEST offer is accepted. No double ending or anything like that. Also, flippers don’t set the price for homes, the market does. So we may be doing okay now but can get screwed at a moments notice.

    Anyways if you guys have any questions I will be more then happy to answer them. You can grill me as well, it’s okay I have a thick skin.

  14. Hey, Jim…

    You think Chuck Ponzi isn’t my real name? I’m as real as they come.


  15. Like you said, SDR, it looks to me like you were fair and square.

    I don’t like flipping, but if it has to exist, I definitely prefer to see people like you benefitting from it than the arrogant “professional flippers” with their Pergraniteel upgrades and 300% mark-ups. Quite frankly, they way they’re treating savers, anyone with any cash on the sidelines is going to be tempted to flip (myself included). Savers have been punished so severely and for so long, that we feel squeezed out of a cash position in a way that’s never been felt before.

    Thanks for sharing your story, SDR.

    Happy Thanksgiving!

  16. I don’t understand why anyone would really have a problem with flippers. Flippers are not setting the market prices.

    The market is NOT determined by flippers, it is set by what my (and your) peers are willing to pay. Noone is going to be able to sell for more than the current market value because the house won’t appraise and the buyer won’t be able to get financing.

    Yes, I know there are exceptions where a place will sell for more than the appraised value, but for the most part a place HAS to appraise or the deal dies, and the appraisals are just a real-time tracking of what the public is willing and able to pay.

    There is an old saying in the used-car business that carries over to real estate flipping……

    **You’ve made your money when you BUY the car, not when you sell it.**

    The flippers are making their money on the front end of the deal by either paying below current market value, or adding value to the property.


  17. Just to throw in my 2 cents: imho those folk who hang out on the CR blog and Mish blog are as closed minded and mean spirited as they come.

  18. Could you please comment on one of the things mentioned in the video – HOA dues. I believe the HOA does still have to be paid even after the foreclosure. If they have filed a lien against the previous owner it does get wiped out but they will file another lien against you, and in order to resell the house the new buyer will want to have HOA dues current at the time of sale.

  19. Bliss and Chuck, sorry I’m not referring to you or anyone here.

    I didn’t like some of the comments at CR.

    Chuck, I gotta ask, are you related to the original?

  20. The problem is not the flippers. They are just trying to smooth out a market anomaly.

    The problem is at the court house steps. By making the auctions hard to attend, bid on, check out properties, etc they limit the pool of potential bidders and therefore the price at the court house is probably lower than it should be.

    A better auction process would be in every one’s best interest, except for the flippers.

    The flippers just tell us there is an issue with the market.

  21. The CR comments are nearly unreadable these days. I’m somewhat bearish on real estate (I’m looking to buy, and will if I can find a house I want) but CR comments are impossible to read. People there are so bearish, I feel they are worse than the bullist person I’ve ever seen.

  22. Don’t hate the player, hate the game.

    Thanks for sharing. Fascinating. You might get a little more competition now, heh.

  23. John/Jordan, I totally agree. I’ve been following Mish and CR for years now and rarely bother with the comments. Mish’s commenters are much, much worse than CR — like deranged crazy worse. I’m pretty bearish too, I think housing is still overpriced and those prices are being propped up by FHA loans and too low down payments. Unless there is a rise in middle class wages in the future, the whole exercise will end in tears. Middle class wages are contracting, not going up. Globalization is going to continue to put downward pressure on wages.

    There is yet another article out this morning that 50% of trail modification are failing. Duh. Half of these people cannot document their income, so all this time has been wasted keeping them in a house they could never afford in the first place. These speculators have to flushed from the system so that people who CAN document their income can get a seat at the table. In order to heal the wound, the infection has to be cut out.

  24. Question on the HOAs….

    The HOA liens all get wiped out. Yes we have had a few HOAs TRY to stick us with them but they all give up on that really quick.

    As far as carrying costs, they are like death by a thousand pins. Lots of nicks and cuts. When you buy at trustee sale you have the county transfer tax you pay when you record. When you sell the home you pay that again. Your prorated property taxes are also based on the previous assessment, NOT what you purchased it for. We have been told eventually the county will come back with what they owe us. However alot of money goes out and hides from you for quite awhile.

    Oh and the person that mentioned the loan mods. Yeah some of them are failing but another thing we found is unscrupulous law offices screwing the homeowners. One of them told us they got a call from Pacific Law Center the night before the trustee sale that the loan mod fell through. Another told us they never even got a call about the failing mod.

    If you are gonna try a loan mod, I would steer clear of working with these law firms.

  25. Can’t believe there is backlash against this guy. My undying respect for this independent businessman. The Michael Moore types should be cheering on the little guy here. He’s my hero – he’s rehabilitating titles, evicting the squatters, and getting inventory back on the market (so we can have a crack at buying it), while shouldering all the risk. And he’s doing all the neighbors a favor too; imagine what it is like to live next door to one of these distressed properties. He’s the solution to the mess, one house at a time. Everyone wins with this guy in the game. Press on Adam!

  26. I can remember not too long ago when BubbleInfo used to have charts showing zero foreclosures in Carlsbad. Now they are all over the place!

  27. I don’t understand why anyone would really have a problem with flippers. Flippers are not setting the market prices.

    The market is NOT determined by flippers, it is set by what my (and your) peers are willing to pay. Noone is going to be able to sell for more than the current market value because the house won’t appraise and the buyer won’t be able to get financing…

    …**You’ve made your money when you BUY the car, not when you sell it.**

    The flippers are making their money on the front end of the deal by either paying below current market value, or adding value to the property.


    murf2222 | November 26th, 2009 at 12:07 am

    Because they are creating excess, artificial demand at the affordable price points, which drives prices up to the next levels.

    The flippers are indeed a big part of the problem. As with any market, if you introduce additional demand (especially artificial demand — oftentimes, with deep pockets and the “right” connections) you raise prices. When you get to a point where the margins become too thin, that excess demand will drop off, and prices will crash.

    In other words, they create extra volatility and momentum in a market. When one considers the fact that housing/shelter is a basic need (which also involves a greater portion of the population), and combine that with the excess leverage used to buy houses, that extra volatility and momentum creates a lot of problems.

  28. The flippers are indeed a big part of the problem. As with any market, if you introduce additional demand (especially artificial demand — oftentimes, with deep pockets and the “right” connections) you raise prices.

    What is “artificial demand?”

    Sure flippers can be part of the problem, and in fact, they can be the primary problem, but that has nothing inherently to do with flipping. It has to do with speculative greed. What flippers should be doing is identifying market inefficiencies in the form of properties for which actual demand is less than it should be based on the market. The courthouse steps business is a major source of inefficiency in the market. Things should work differently, but things being as they are, flippers are performing a useful service.

    When JtR talked about “the courthouse steps” I always thought he was speaking figuratively. I had no idea that he literally meant on the courthouse steps until he showed it in a video.

  29. “artificial demand” is demand for a good or service that is not organic demand — not “normal” demand.

    In the housing market, “artificial demand” would be demand created by individuals/entities who do not intend to live in the houses (shelter being the one real reason there is ultimate demand for houses…heretical, I know).

    Artificial demand is created by speculators who buy for the sole purpose of making a profit because they assume end buyers/owner-occupiers (real demand) will pay more for housing than the speculators did.

  30. BTW, end users would be more than happy to buy at the courthouse steps. The problem is that the big-time speculators/flippers have cornered the market, effectively eliminating/reducing supply to abnormally low levels.

  31. BTW, end users would be more than happy to buy at the courthouse steps.

    Then why don’t they? You say the speculators/flippers have cornered the market, and I don’t understand what the real limitations are. And what would happen if “real” buyers had equal access to these courthouse steps buys, assuming they currently do not?

    I’m not buying this distinction between artificial and natural demand. The problem is inefficiencies in how the market works.

  32. Then why don’t they? You say the speculators/flippers have cornered the market, and I don’t understand what the real limitations are.

    1. Because “real” buyers don’t have the same access to capital. Speculators often have access to capital via investment funds/pools. Regular end-users usually do not have this same access.

    2. Because end-users are unfamiliar with the process (and the pros often have lots of experience at these auctions, often being familiar with the auctioneer, the general process and pitfalls, etc.). The o/o buyers don’t know if the bids are valid or if the banks are bidding against them. They don’t know all the details about title, etc. while the speculators often have inside connections at certain title companies and with clerks at the county recorder’s office.

    3. Speculators are better able to out-bid end-users because they have deeper pockets. Owner-occupiers have a limit as to how much cash they can access at any given point in time. Speculators do not necessarily have these same limitations — again, most of the big-time speculators/flippers have access to very large pools of capital.

    And what would happen if “real” buyers had equal access to these courthouse steps buys, assuming they currently do not?

    It’s not about o/o buyers having equal access, because that’s virtually impossible in a market where certain parties are regular buyers and owner-occupiers are going to bid a single time. The knowledge, connections, and access to capital will ALWAYS be in the investors’ favor.

    Since your position is that flippers do not affect the market, a better question would be: what would happen to prices if speculators were not in the market? It is my personal belief that prices would be much lower than they currently are…and that would be a good thing because it would help prevent future price volatility and future foreclosures. Speculators are only able to sell for more because the o/o buyers in the “reguar” market have access to leverage via the mortgage market. The end users are forced to take on more debt than they would otherwise have to carry if the speculators were not bidding against them.

    I’m not buying this distinction between artificial and natural demand. The problem is inefficiencies in how the market works.

    We’ll have to agree to disagree. It always boils down to supply and demand. If supply is artificially constrained (foreclosure moratoriums, loan mods, deadbeat squatters living rent-free, etc.) and if demand is artificially increased (via govt-backed mortgages, low down-payments, tax credits, artificially supressed interest rates, speculation, etc.), then the end users who buy in such an environment are taking much greater risks than they would in a free market environment. The PTB are setting up the next wave of foreclosures with the current programs.

  33. CR comments are almost as bad as the Patrick forums… but more clicky(sp?) and more bearish on the economy in general.

    I know Jim is trying to open up the courthouse steps to regular buyers, but it is inherently a very risky business, and as Adam says (in a later video) if you’re buying for yourself you need to do a lot more due diligence (because you can’t average over many properties).

    The fact that the margins are getting slimmer means (a) that “flippers” are taking some of the inefficiencies out of the market (b) that Adam may need to consider stopping sooner rather than later.

    These middlemen are providing an expensive service by minimizing the risks to the new owner, but it’s a service nonetheless. As long as they are marketing the properties quickly, they provide no additional net demand. For every house they buy they also sell it. They’re creating higher price at auction for the banks, but no additional demand on the MLS market, in fact faster supply than a bank would. Win-win.

  34. they provide no additional net demand

    Agreed, the trustee sales aren’t readily available to the general public due to the insane practices of postponing the sale dates for months at a time, and the delays in publishing the opening bids.

    The trustee sales aren’t counted as sales either, at least not on the MLS, so the general sales counts aren’t inflated by them, nor the pricing. Not sure how Case-Shiller counts them though.

  35. Given that C-S is a 3 month moving average that appears 2 months after the most recent of the three months, I’d say C-S is purely of historical interest at this point.

    When this market turns, it could turn on a dime. In fact looking at comps doesn’t even tell you what’s going on. Those prices were agreed to over a month ago. Nothing tells you anything but bidding, and what a seller will accept. Anything else is yesterday’s news.

    We have a contract in on a SFH, for 10% under the most recent October/November comps. Seller’s were tickled to death by our offer. Where I am, prices are poised to go lower, but you won’t see it in the list prices. We could probably have gotten an even better deal in a few months, but we love the house, and plan on living there for a very long time, so we don’t care. Close January 5th.

  36. CAR you and I have debated about the roll of flippers and I don’t want to clog the boards with it. I would say that I did not have any access to capital. It is my own money. There are hard money lenders out there for people although it is admittedly a very obscure process. I do believe you are discounting the risk premium that is undertaken. While I do not offer anything to improve home physically, I do take the risk of the title issues, coming up with the cash, making sure the home can convey, etc…

    I will heartily agree with your point that if there was a more regulated streamlined process for REO properties then the “problem” would be solved. However our govt has taken about as wrong as a direction as they could wouldn’t you say? Rather then creating an entity such as RTC to basically take all of the homes and sell them publicly, they gave free taxpayer money to the banks and said, here you go! Take the money, take the homes, oh and by the way lets relax accounting standards.

    So yes a highly regulated and visible mechanism for procurring reo homes, and then distributing them in a fair manner for sale would have been the fairest way to do things.

    However that is not gonna happen.

    I see no distinction between real and artificial demand. Demand is demand is demand. I add to the supply. Also I do not dictate price CAR. All I do is set an opening price and the market will determine the price. So to say that speculators drive pricing up is IMO an incorrect statement. If this home was not on the market, the result would be one less widget of supply, and one more buyer looking for other widgets.

    Cara your points are on target. Going to auction is painful now because of the buying activity and we shake our heads at bidders who are bidding up the prices so high. They will get caught in a bind, it is not a matter of if but when. So yes we have passed and will continue to pass on homes that don’t fall in our range and that may kick us out altogether.

    Going to the auction itself was exciting for the first 2 or 3 times. Now it is burdensime. You sit there for a few hours only to have the properties you targetted get bid up to a ridiculous price. You need to exercise the self control and lay off. Then you leave empty handed. You have burned 4 hours doing nothing. This is BY FAR the usual outcome. Like I said, we have been to auction probably 40 times and with only 7 homes you do the math. This does not even count the number of planned trips we had that got cancelled due to postponements.

  37. SDR,

    I hope you know I’m not trying to give **you** a hard time. You do have access to capital though in the form of your own money and your partners’ money.

    You are also turning the properties around quickly, and in that sense, you are not affecting supply/demand in any great way. You are also dropping prices to what the market can bear. My beef is more with the “deep pocket” investors who are willing to sit on inventory until they get the prices they want. Generally, they try to get the product to market ASAP, but I’ve seen them sit on them for months while they fix them up and market them at much higher margins. I’d rather see what you did here — just leave the house alone and **quickly** bring it to market as is, so that a new buyer can buy it at a more reasonable price and fix it up to his liking.

    You might know that I have been looking at bulk deals and MBS deals as part of an investment group myself. Just like you, I’ve been watching this intently from the sidelines, and am getting upset that the PTB are causing the same problems all over again.

    It’s just frustrating, as you know, to see things being done the way they are.

    I absolutely wish you the very best, Adam, and sincerely hope you get out quickly while the other “deeper pocket” flippers (usually from out of town) get stuck holding the bag. 😉


  1. Flip This Lawsuit » Adam Rappoport - [...] The Realtor has a three part series of interviews with flipper Adam Rappoport (known online as “SD Realtor“).  [...]

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