Saturday, June 2, 2012

Elizabeth Warren - real estate flipper

The Boston Herald reports that Massachusetts Democrat Senate candidate Elizabeth Warren has reaped large profits from the purchase and sale of foreclosed homes in Oklahoma, despite attacking such practices in her campaign. The newspaper lists a number of transactions where Warren either purchased foreclosed homes and sold them quickly for large gains or lent money for others to purchase and eventually sell those homes.

Aside from Warren's hypocrisy and the political implications from this story, there are lessons regarding house flipping that the newspaper did not pick up and that apply to Pennsylvania as well as other regions where these practices take place. The bottom line is that the profits were not necessarily as high as the raw numbers reported in the Herald.

  • Most likely these homes required repair and renovation (as do most foreclosed properties) - unless Warren unloaded homes with hidden defects on unsuspecting buyers.
  • Real estate taxes accumulated during the period of Warren's ownership, all of which cut into her profits. Utility and financing costs also accumulated - unless Warren found tenants to rent the properties while she waited to sell them.
  • Unresolved title issues may have forced Warren to incur expenses so that she could convey clear title - unless she unloaded homes with clouded title on unsuspecting buyers.
All of these points would make for good followup questions to determine the true nature of Warren's investments, although it is virtually certain that this followup will not take place.

Also, the Herald article referred to Warren "giving" mortgages to her family members so that they could buy and flip houses. In fact, Warren lent the money.  Those who lend money do not give mortgages - they receive mortgages.  The borrowers give the mortgages to the lenders.  Most newspaper writers do not understand this point. 

The final lesson is that a politician that takes part in real estate investment is not necessarily a friend to other such investors. Investors should not count on Warren acting in a way that supports investment if she reaches the U.S. Senate. 

1 comment:

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