Buy, fix and flip...

03/09/2006

By Deborah Bach / Seattle Post-Intelligencer

The living room of the old Ballard house is redolent with the scent of freshly laid oak floors, but as Brent Fosso will tell you, just a few weeks ago, it was a much different scene.

"It was filled with garbage. There were rats. We caught a big one," said Fosso, holding his hands about 10 inches apart to demonstrate the size.

This is no big deal to Fosso. He'll buy your house, no matter how rodent-infested, crumbling or retch-inducing it might be. No need to remove that broken-down washing machine or the piles of newspapers you've been keeping for years. Bags of rotting garbage, mattresses in the back yard -- Fosso will take care of it and make himself a tidy little profit in the process.

As Seattle's housing prices continue to skyrocket and home improvement becomes an increasingly popular hobby, people are trying their hands at the "rapid reselling" game. Some are relative amateurs, people with enough skill -- or enough audacity -- to make run-down homes more presentable and flip them.

Others are more serious players in this universe, such as Fosso, who's been at it for more than 20 years, or the HomeVestors "We Buy Ugly Houses" franchiser started by Dallas real estate investor Ken D'Angelo in 1996. The company, widely recognizable by its yellow and black billboards featuring a cartoon caveman named Ug, now has 250 franchises in 30 states, including Washington. Similar companies have sprung up, including EZhomebuyers of Fort Wayne, Ind., but HomeVestors is the only franchiser.

Fosso's IBuySeattleHomes.com buys and sells between six and eight houses a year. To Fosso, the most neglected houses are mines of untapped potential, ready to be transformed from an eyesore into the envy of neighbors.

He'll add fireplaces, reconfigure floor plans and make other changes so drastic that the house is barely recognizable from its former self. Homes should have certain features for maximum appeal, he says -- a fireplace, dining room, gas furnace, rec room and, ideally, three bedrooms.

"Three is the magic number," Fosso says. "You don't want to wind up with two, because then you're limiting larger families. Whenever I wind up buying a two-bedroom house, I try to figure out how I can get a third bedroom in it. Maybe it's finishing off the basement. Maybe it's dividing up the first floor a little differently."

Fosso, 46, wasn't always so handy. He bought his first house in 1984, a West Seattle shack minus a foundation, but with plenty of termites and carpenter ants. He paid $35,000 and after doing a little painting and paneling, sold the house a month later for $57,000. In the days before Google and a proliferation of do-it-yourself shows, "my renovations consisted of Windex and a roll of paper towels," Fosso said.

Over time he taught himself, working only with a helper for the first decade. Today, he has a small crew of workers who do most of the dirty work.

Another Ballard home Fosso is working on now was owned by a woman who had saved 30 years' worth of old stereos, pots and pans, magazines and other clutter. She'd installed makeshift sheds in the back yard to hold what wouldn't fit in the house. A portion of the roof had caved in, creating wet, moldy piles of papers.

It took nine 18-foot trash bins to cart off the mess.

"It's not pretty work. But when it's done, it's pretty," Fosso said. "You have to have imagination to see what it can be."

Such work is not for everyone, said Bill Reid, a longtime real estate agent and co-owner of John L. Scott Westwood in White Center.

"I've seen some of the things he's bought," Reid said of Fosso. "He'll take it packed to the rafters full of crap. He doesn't care. You have to have skin of leather. You've got to have some good rubber boots and good gloves and a gas mask.

"Everyone has their method. Brent does very well."

A project typically starts with Fosso sketching out the house's floor plan on paper. He gives that to his wife, Ann, a stay-at-home mom and former attorney with a knack for eyeballing a room and visualizing the best use of the space. It was her idea, for example, to move a kitchen doorway in the former rat-occupied Ballard house from one side of the living room fireplace to the other. The change closed off a corner of the kitchen and created substantially more cabinet space.

Over on the Eastside is a HomeVestors franchise opened two years ago by Chip Golembeski. Before he started the franchise in Redmond, Golembeski bought houses that were in foreclosure and resold them. Some were fixer-uppers. Others were high-end homes that people wanted to get rid of for various reasons -- they inherited the home and lived out of town, or were in hard straits and needed the cash.

But the foreclosure business is cutthroat, and Golembeski said by the time unsuitable houses are weeded out and others are removed from foreclosure because owners resolve their issues, there are usually only about 10 or 15 homes available weekly -- and a whole lot of buyers. With HomeVestors, he simply waits for referrals that come when potential sellers call a 1-800 number and are referred to a franchisee in their area.

"They come to me via advertising," said Golembeski, 37. "It's a novel approach to the same end."

HomeVestors franchisees pay an initial fee of $46,000, contribute to an advertising fund, and pay monthly fees of $495 as well as $775 for each property bought.

Golembeski won't divulge annual revenue, but said he bought 28 properties last year and buys all over Western Washington. In cities in which HomeVestors is more established, he said, individual investors have begun buying properties from franchisees rather than trying to compete with a well-known brand.

"What HomeVestors has done in many, many markets is that they have gone in and become the 100-pound gorilla," he said. "They're on every corner. For the small investor to compete with that is virtually impossible. As HomeVestors has gotten bigger, they're saying, 'Why fight it?' "

Fosso has no intention of being swallowed up by the behemoth. "He would like to think that there isn't any room for the small guy," he said of Golembeski. "I don't ever plan on buying a house from HomeVestors. It would be an extremely rare situation where I would buy a house from another investor, because it's just not priced right."

Golembeski strives to recoup 15 percent of his investment, whereas Fosso aims for at least 10 percent profit on the selling price after the cost of renovations are factored in.

He might buy a fixer-upper in Ballard for $300,000 and sell it for $400,000, with the goal of pocketing at least $40,000. Fosso says profit varies widely, given the oddities involved with fixing old houses and the truism that renovations always take longer and cost more than originally anticipated.

Fosso usually sells the houses himself to avoid paying real estate agents' fees, and keeps a few as rentals.

Fosso, his wife and their two little girls live in -- what else? -- one of his restoration projects, a two-story, 3,200-square-foot West Seattle Craftsman with newly added cove ceilings, a fireplace and a kitchen with black quartz countertops and maple flooring where linoleum once lay.

He buys all over the Seattle area, from Burien to Bothell.

"Where I buy houses is where there are old houses. Ballard is old; West Seattle is old," he said. "If you go out to Edmonds, they're all newer out there. And Bellevue -- forget it."