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Flipping Out

Reap Big Profits (and Losses) In Baltimore’s Housing Boom–But Don’t Tell The Sellers

Photographs by Jefferson Jackson Steele
WITH GOD AS HIS WITNESS: Baltimore real-estate investor Steve Cook has made buying and selling homes for profit into a lucrative career.
OUT OF HOUSE AND HOME: In 2004, Roosevelt Jones and his family were evicted from their home by Steve Cook after failing to make good on a rent-to-own deal he entered into with Cook.

By Edward Ericson Jr. | Posted 8/3/2005

About 20 people mill around on the clipped front lawn of a cozy brick rancher on White Avenue, in Northeast Baltimore’s Cedmont neighborhood. It’s an early July weekday morning, and the visitors have walked inside the house, taken stock of its three small bedrooms, its 1.5 baths, its recently spruced-up kitchen, its finished basement, and the yard, which measures about a fifth of an acre. They’ve made their calculations, arranged their financing, and they’re each ready—if they bid high enough—to hand over a certified check for $10,000 to A.J. Billig and Co., Auctioneers. Some of them nod cordially to the home’s owner, a pudgy, poker-faced 27-year-old man wearing baggy jean shorts and a plaid shirt, standing off to the side.

None of them know that he’s owned the house for a total of five days.

“My business model is, I’m a businessperson who helps people,” the man, who we’ll call “Stan,” says. He says the home’s former owner, who bought it for $100,000 a few years ago, told him she wanted to net only $8,000 on the sale. “I told her, ‘You could do a lot better,” Stan, a devout Christian, says. “She said, ‘I want this to be a blessing for you.’”

Stan says he could divulge the previous owner’s name, so a reporter can confirm the story. But then he doesn’t, and later gets upset when the reporter tries to contact her. (A letter sent to the previous owner at the White Avenue address later brings a response from Stan, but none from the woman who owned the house before him.)

Stan tells the reporter he paid $120,000 for the house and related expenses, including a $3,000 payment to the man who gave him the lead on the property. He whispers that he hopes it will sell for $135,000.

Minutes later the 1,144-square-foot home sells for $201,000. On closing day, if the deal holds, Stan will make $81,000 (or maybe only $73,000—after the auction he claims to have invested $128,000—though property records show a sale price of $117,500).

As the deposit check is inked with the auction company inside the house—nestled in a neighborhood in which similar houses sold recently for about $130,000—Stan seems to grow nervous. A few days previous, he was talkative with a reporter. He confirmed he had earned more than $200,000 last year buying, rehabbing, and reselling houses in Baltimore. He said he was going to do far, far better than that in 2005. “Right now,” Stan said, “if I don’t do another deal for five years, we’ll be fine.”

Not bad for a kid who got laid off from an engineering job in part, he says, because “I was a bad employee anyway—I’d show up for work at 11 or 10.”

But Stan’s glib confidence disappears this morning as the auction gets underway. Stan tells the reporter he does not want his real name published in the newspaper. He is a private man, he says, and he reached the decision after prayerful consideration with his wife.

Emerging from the White Avenue house, Stan is agitated to see the reporter there still. His voice rising, Stan asks him not to talk to the winning bidder, either.

“How would you like it if you came out after buying a house for $201,000 and a reporter said, ‘Hey, this guy just bought it for 128?’ It’d kind of mess up my deal, don’t you think?”

And so goes Baltimore’s real-estate boom. A.J. Billig, the auctioneer, invites the dozen or so losing bidders from White Avenue to his next auction—he is conducting three more on this day alone. Stan, $75,000 or so richer, assures a reporter that this was a very unusual windfall. “That was ridiculous,” he says later of the auction price. “I would have taken 130!”

Baltimore’s ridiculous real-estate market is but one hot spot in a nation suddenly awash in stunningly valuable houses. In Miami, condominium builders sell all their units before even breaking ground, and those buyers then resell the condos to new investors for tens of thousands more—also before they’re built. In Southern California, mobile homes have reportedly sold for more than $1 million.

The housing boom is creating millionaires and drawing would-be investors into a complex and often murky business. Enticed by late-night infomercials pitching pricey “no money down” books, videos, and boot camps, thousands of ordinary working people are posting “bandit signs” (we buy houses for ca$h), trying their hands at “bird-dogging” (looking for underpriced houses for investors who’ll pay a finder’s fee), and “wholesaling” houses to other investors and sometimes rehabbing them for quick sale. The latter practice is also known as “flipping.”

For Baltimoreans with any kind of memory, “property flipping” means ruined neighborhoods. It means mortgage fraud, and it means scam artists like Robert L. Beeman, a Delaware investor who bought about 100 inner-city Baltimore wrecks for a few grand each, slapped a coat of roof sealer on them or installed carpet, and sold them for $65,000 and $79,000 to naive single mothers earning $9.50 an hour, many of whom lost their shabby castles to the bank. From 1998 to 2000 The Sun published more than 100 stories about flipping in Baltimore, which it called an “epidemic.”

Foreclosure rates in Baltimore had quadrupled from 1,500 per year in the early 1990s to 6,000 per year in the late 1990s. The Federal Housing Authority (FHA), which insures low down-payment loans, claims it lost $75 million in Baltimore City to fraud as the default rate on FHA-backed home mortgages reached a staggering 17.8 percent (conventional mortgages nationwide saw default rates of less than 2 percent). Hundreds of working people lost their homes—to foreclosure or, in one infamous Beeman sale, to collapse. Whole neighborhoods were devastated. Sen. Barbara Mikulski (D) held hearings, and prosecutors made federal cases, which are still ongoing. So far 100 people have been criminally convicted, many of them—including Beeman—were sentenced to prison for 30 months or longer.

In 2000, the U.S. Department of Housing and Urban Development (HUD) empaneled the “Baltimore City Flipping and Predatory Lending Task Force” to sort out the mess and propose needed reforms. Among those proposed: A law that would have required home sellers to divulge to buyers how long they owned the house and how much they paid for it. It did not pass the General Assembly.

The flipping task force is winding down now. Diane Cipollone, director of research and policy for the nonprofit Community Law Center in Baltimore, is finishing the task force’s final report, which she hopes to publish some time in the fall. She stresses that what happened in the 1990s—when investors created phony loan documents and bogus appraisals in order to steal money from banks—was fraud, whereas what’s happening now under the name “flipping” is usually not. “I try to use the word ‘illegal’ property flipping when we do the work we do. As opposed to someone getting a good deal and making a profit—that’s the American way,” she says. “I guess the real issue is, do you really do a decent rehab? Do you really sell it at a fair price?”

Whether home buyers feel like they got a good deal or not, the term flipping has lost some of its pejorative flavor. On July 14, a new show premiered on the Discovery Home cable channel, called Flip That House.

Àhere is also a web site called Flippinghomes.com, founded and operated by a man from Reisterstown. And according to Stan, the man who runs Flippinghomes.com taught him much of what he knows.

 

“I’m just a God-fearing person,” Steve Cook explains. “I do have a fear. I believe that if I did the wrong things that my success will be stripped from me.”

Cook, the 34-year-old founder and operator of Flippinghomes.com, is a modest man in many respects. Wearing rimless glasses offset by a wide face under unstyled, light brown hair, Cook presents himself as a calm, plain-spoken sort—like a Midwestern farmer or the owner of the general store. While most real-estate gurus pitch their wares at high volume, festooned with silk ties and gold watches, Cook speaks in a low and quiet voice. Discussions with his business associates, turn up nary a discouraging word. Cook has seldom even been to court—a rare thing in business—and the largest suit he’s faced, according to records, was a $20,000 claim against him after a car accident.

Avoiding lawsuits is often a prime activity for real-estate investors, who endlessly discuss esoteric corporate and trust structures designed to hide assets or foil would-be litigants. Cook—who has earned millions during the past several years buying houses cheap, fixing them up, and selling them—usually cites the Golden Rule when addressing such schemes: Treat others as you would like to be treated. “Will a bunch of entities and asset protection keep you from being sued? No. Will you lose if you did nothing wrong? Probably not,” Cook wrote in response to some recent posts on his online message board. He signs his postings there with “Blessed investing.”

Walter Stephen Cook was born on Long Island in Port Jefferson, N.Y. He lasted only three semesters as an accounting student at North Carolina State before dropping out in 1989 to go into business. “I said [to myself], what are you getting a degree for? You’re never going to work for someone else,” Cook recalls.

He bought a restaurant, the Bachman Valley Inn, in Carroll County. It tanked. Cook says he sold it back to the owners at a loss, pledging to repay the $50,000 he owed. “I always had a certain degree of integrity,” he says. “I put my name on the line.”

After his father died in 1997, Cook began managing a chain restaurant and struggling to repay his debt. “He owned a restaurant and bar. I [had] owned a restaurant and bar. I looked at him, and realized that that was where I was going to be,” Cook says. To avoid his father’s fate, Cook bought real-estate courses from gurus like Carleton Sheets.

Starting in the summer of 1998 as a “bird dog,” Cook found several property owners willing to part with houses cheap. He earned $1,000 each for passing the leads about those houses to a wealthier investor who bought them to fix up. Soon, he had so many good deals lined up that his investor couldn’t handle them all, so Cook started putting houses under contract and selling contracts to other investors, a process known as “wholesaling.” Cook made several thousand on each of those deals, he says, and his real-estate career was underway.

Cook’s spiritual awakening came slowly, beginning shortly after he got into real estate. “It started the day my daughter asked to be taken to church,” he says. They chose a Lutheran church (“My mother had always told us we were Lutherans,” he says), but found the small congregation too eager.

Cook was not yet ready for God.

“I was going there for my daughter,” he says. “I just didn’t want to be there. Everybody was trying to talk to me, I was sitting in the back. I just wanted to duck out the door.”

A friend told Cook about a “safe church,” where he could be more anonymous, at least at first. He joined Grace Fellowship in Timonium—one of the biggest. But after about two years, Cook says, he grew restless. “I really wanted to grow,” he says, but the pastor left, and the church became more “mild and watered down.”

Cook found a more muscular, evangelical spirituality at Trinity Assembly of God in Lutherville, and says he has worshiped there for the past three and a half years. These days, Cook holds “prayer breakfasts” for the investor students at his boot camps, and he often appears in public wearing a polo shirt with a “Fellowship of Christian Athletes” insignia. But he’s no pulpit-pounder.

The only thing brash about Cook is his online business address.

“I’ve had a number of people tell me I should change the name of my web site,” he deadpans.

Cook blames the media for making “‘flipping’ a household word,” and not a positive one. And when people take the time to explore the web site—a mix of soft-sell sales pitches, peer-to-peer mentoring, and Christian witness—their suspicions usually melt away. First thing on the front page, he posts a link that says, “Is Flipping Illegal?” (No, it isn’t.)

Then again, what Cook considers flipping isn’t the same as what most people think of as flipping. Cook says people who market their homes to the unsophisticated at high prices—the way things were often done a few years ago—usually end up in trouble. “I disassociate myself from them,” he says. But buying at below-market prices and then selling high in a competitive market to people who can afford to buy—that’s something else.

“Particularly in an auction environment, I don’t have any qualms,” Cook says. “They’re paying what they’re willing to pay. I’m not sitting there trying to get more money out of them. The thing about auctions, most of the buyers are investors.”

Cook says that word—“investor”—with a weary inflection. There are investors—Cook has been one for seven years now and has done quite well for himself. And then there are “investors”—hoards of newbies drawn by promises of easy cash in the housing boom. Many of them are part time, playing with money they’ve cashed out of their own homes through refinancings. Some are savvy, but lots of them are making the same mistake most new investors make, say Cook and other experienced investors: They’re paying too much for houses.

In fact, the flipping business has grown so large in Baltimore City that, according to an analysis by The Sun, 67 percent of all the homes sold in the first four months of 2005 went to investors hoping to profit from them.

“That’s insane,” Cook opines. “I think the investors are driving the prices up. I don’t see how that could sustain the market.”

Of course, Cook himself makes money training some of these new investors. He urges them not to pay too much, not to get emotional, and he says he sells more than $200,000 worth of course materials each year, among them a course book and a set of DVDs ($79) called the “Ugly House Workshop Video.”

Cook says the Flippinghomes.com site and his boot camps ($1,495), courses, DVDs, and personal mentoring services are all meant to help change the image of real-estate investors—while helping them get rich, of course. “I want to be the light in the industry and really do things ethically,” Cook says. “I want to be proud to say I’m a real-estate investor, and not have to mumble it.”

Cook earned the wisdom to teach others about the ins and outs of investing by doing it himself. He is proud of his rehabs, which he says often end up as “the nicest home on the block.” But lately Cook says he rehabs “just to have something to show my students,” finding quicker profit in “prehabbing”—investor-speak for raking the yard and cleaning out the trash. Cook often “wholesales” these houses to other investors so they can fix them up. The key to profits is finding motivated sellers—people who would rather get cash quickly, or on their own schedule, than wait for a real-estate agent to list the home for sale. Cook deals with the recently divorced, executors of estates, out-of-state landlords whose tenants have wrecked their houses, banks, and people who have lost their jobs or are facing foreclosure.

In that, Cook is just another among hundreds—perhaps thousands—of Baltimore investors looking to flip houses. But he has several advantages over most of them.

First, Cook has money—enough money to buy almost any house he wants without dealing with a bank or other lender. A lot of investor-rehabbers borrow from a “hard money lender”—so-called because, for a $100,000 loan, they charge $3,000 up front and 15 percent interest (or more). Cook says he is, himself, now a hard-money lender for other investors. “As a hard-money lender, I like to say the worst thing the borrower can do is pay the money back on time,” he explains, adding that the short-term nature of the loans yields a return-on-investment of about 30 percent annually.

Second, Cook has a network of other investors he’s mentored or worked with in the past who will pass him deals or take properties off his hands—so long as he’s bought them cheaply enough.

Third, Cook knows his market—the working-class neighborhoods along the Harford Road corridor in Northeast Baltimore City and into Baltimore County. He knows them so well that he often buys houses over the phone, without even driving by them. In a market as competitive as Baltimore’s, speed equals deals.

As Cook says, “You can’t steal in slow motion.”

 

Cook says he yelled that catch phrase one afternoon as Stan, his star student, arrived at a house Cook had just purchased.

“He was willing to go $1,000 more [than I paid],” Cook says. But Stan was a few minutes too late.

It was a good-natured exchange, two essentially blue-collar guys (albeit one a millionaire, the other on his way) razzing each other the way some might at a bowling alley or a low-stakes poker night.

Stan, who has been flipping houses in some of the same neighborhoods as Cook for the past four years, speaks highly of Cook, and the two often work together. “I flipped my first couple houses to Steve, actually,” he says.

And, as it happened, Cook gave Stan the lead on the White Avenue deal that turned out so profitable.

Cook says the owner of that house called him after reading a bandit sign he put in front of one of his rehabs in progress. “I negotiated a pretty decent deal with her on the phone,” Cook says. But after factoring in his closing costs, he didn’t think the house would sell for enough to make the expected profit—about $15,000—worth his time. So he called Stan.

“I said, ‘I don’t feel like going out there,’” Cook recalls. “‘If you get it, will you give me a little something?’” Stan said sure.

“If I had known what it was going to do,” Cook says, “I wouldn’t have passed it on.” He says Stan gave him $2,000, not $3,000.

Such payments are routine—many investors get their start by bird-dogging deals for wealthier investors who close them and pay a small finder’s fee.

The payments are also, apparently, illegal.

“That could be a questionable practice—because he is, in effect, in the business of marketing real estate,” says Jody Landers, executive vice president of the Greater Baltimore Board of Realtors. “If you’re in the business of [dealing] real estate, you’re supposed to be licensed.”

Several calls to the Maryland Real Estate Commission brought forth no official who would speak on the record, although one official points out that the commission’s disciplinary file has doubled in volume over the last two years. The official says resources for enforcement are sparse, and the commission investigates only when it receives a complaint.

The law defines what Cook does as real-estate brokerage, and states that licensed real-estate salespeople are prohibited from paying “compensation, in any form, for the provision of real estate brokerage services” to unlicensed people.

“The Real Estate Commission would likely read the statute literally and say that regardless of his status as a buyer, and not an agent, [Stan] cannot pay compensation to an unlicensed person,” say Kevin Enright, a spokesman for Maryland Attorney General J. Joseph Curran Jr. “We are not aware of a case either regulatory or criminal where a buyer/licensee has had charges brought against him/her on this basis. That is not to say that they would not do so on these facts.”

Cook says this and other legal provisions are why he advises his students to “close on every deal”—that is, buy the house rather than simply getting the house under contract, and then selling the contract for more than the purchase price, another form of brokering. Bird-dog fees can be finessed, says Cook. “It depends on how the bird dog gets paid,” Cook explains. “If it’s just a referral fee—you’re not supposed to do that. It’s basically a gray area, which is why it’s not enforced.”

In the case with Stan, both say it was a barter. “We did another deal, and he got less on that deal” than he would have otherwise, Cook says.

Regardless, Stan is a licensed real-estate salesman. But unlike your average Re/Max agent, Stan eschews selling homes on behalf of others for the 3 percent commission. He made this clear at the White Avenue house as he described his negotiating style.

“I could take advantage of people, but I don’t,” Stan says. “I just ask people what they want [to make]. If it doesn’t work for me, I send them to a Realtor. I tell them, ‘Be careful.’

“I am a Christian man,” Stan adds.

Cipollone, of the Community Law Center, says Stan’s White Avenue deal sounds suspect. “If you start with the premise of ‘What do you need to get out of the house?’—and it’s $8,000 or $10,000—that doesn’t lead to any discussion of ‘What is the house really worth?’ That’s why people should not respond” to those we buy houses signs, she says: “[Sellers] should have, at the very least, a seller’s real-estate agent. Call them and say, ‘Can you give me a market analysis?’”

In the weeks after the White Avenue auction, Stan thinks the deal over, and concludes that he is glad that no reporter spoke to his buyer—or his seller. “She’s a Christian woman, I’m a Christian man,” he says. “I don’t think she’d sue me, but she might be upset. I would be upset.”

Stan reiterates that the auction price was a surprise, and beyond his control. “Now, when I make $60K on a house, I give $30K to my church,” Stan says. “I can control that. I can’t control the amount of profit I make on a deal.”

Though Stan is sincere in his Christian beliefs—and in 2003 even backed out of a proposed flip on Cook’s online message board, and publicly humbled himself for wanting to make too much money on it at the expense of a naive investor—Cipollone is skeptical.

“We had cases where people went into people’s houses and prayed with them,” she says, before taking them to the cleaners.

 

During a long interview over a steak lunch at one of his favorite Reisterstown restaurants, Cook spoke frankly about his life as a real-estate investor, mentor, and budding “guru” in the home-flipping industry.

In 1998, $50,000 in debt from the failed restaurant business, driving a 1993 Geo, and literally flipping burgers for a living, Cook started doing deals.

Earning $1,000 per deal as a bird dog, Cook built up his contacts and honed his skill for finding motivated sellers. Before long he had a partner, who had contacts with a hard-money lender.

Within a year, Cook had bought more than 50 houses, marketing some of them to tenant-buyers through a company called Rent to Own Homes. By 2000, Cook and his partner, Anthony Verner, had bought 100 houses, of which about 25 were occupied by tenant-buyers.

They were in trouble.

Most of the rent-to-own tenants weren’t buying the houses. “Overhead was extreme,” Cook says, referring to the advertising and marketing it takes to entice first-time buyers with poor credit into the deals. He had fallen for a false guru.

Other deals went south. Through no fault of his own, Cook’s Harford Road office was foreclosed, and he had to buy it back from the bank. The headaches multiplied, but Cook saw it all as a learning experience—every dollar lost was a lesson on what not to do.

Cook bought out Verner and began to extricate himself from a management nightmare, evicting the tenants and selling properties, sometimes for below market value. In recasting his business from a buy-and-hold model into its present buy-and-flip configuration, Cook himself became the kind of quarry he hunts now: the motivated seller. He resold the last of those Rent to Own houses, at 5400 Seward Ave., in the fall of 2004, after evicting the tenant through rent court.

Here is the history of that deal: Cook and Verner bought the house in 2000 from a bank for $41,00, borrowing an additional $59,000 with the house as collateral. The pair put Roosevelt Jones in the house as a rent-to-own tenant at $750 per month. In such deals, landlords are not responsible for maintenance of the property.

Jones, a General Motors employee until his retirement this April after 42 years on the job, lived in the three-bedroom, one-and-two-half-bath duplex with his wife and five children. He says he asked Cook to fix the leaky roof at one point.

“He said, ‘It’s your roof,’” Jones says.

The basement flooded three times, filling with “three feet of water” during tropical storm Isabel in the fall of 2003, according to Jones. He says he hired plumbers and bought a sump pump to fix the problem.

But Jones couldn’t come up with the required down payment to buy the house.

“He never did what he was supposed to do,” Cook says.

That’s true, in terms of the purchase agreement. But “I was never late with a rent payment,” Jones says, adding that the [rent] increased to $854 per month by the time Cook put the house on the auction block in 2004.

“He tried to auction the house out from under me, and when that didn’t work, he got mad and sent me an eviction notice,” Jones says. Jones says it cost him $2,700 to move, due to the fact that his family had to stay at a hotel and pay for storage.

But Cook did give him a good reference for his present rental. “I can’t complain,” Jones says.

Cook even offered to sell the house back to Jones, Jones says.

“He said I still had an opportunity [to buy], but I lost interest,” Jones says. “I was ticked off I had to go to court. I’d never had to go to court before in my life.”

Cook sold the home to Callan Investments last fall for $60,000.

Callan Investments is Nathan Schwaber, an information technology worker for Constellation Energy who invests part time. Schwaber formed Callan Investments in 2003 after finding Flippinghomes.com and Steve Cook. “He’s a great guy and great to learn from,” Schwaber says. “He helped me locate my first deal”—and took a split of the proceeds for his trouble.

Schwaber’s next deal was reselling Cook’s Seward Avenue duplex in January for $99,500, according to tax records. Schwaber says he spent a month rehabbing the place: “Tore out the kitchen, both baths, new roof, all new electric service, circuit panel, pretty much everything but tear down the walls.” City permit records show a single permit was pulled to install a new electrical box.

Schwaber says he has two more full rehabs pending near Patterson Park (both are fully permitted). The investment business allows his wife to stay home with the couple’s young daughter, he says, adding that he is content to buy houses from wholesalers like Cook. It costs a little more—but it’s safer.

“I don’t like dealing with homeowners,” Schwaber says. “I have a young daughter—I don’t want to be killed by some guy who gets pissed off because I put a we buy houses sign in [his] neighborhood. I’d rather buy from wholesalers who have done the dirty work.”

Ah, but the dirty work—literally—is where the money is, Cook teaches, as long as you can get other people to do it on the cheap.

“This is what creates a good deal,” Cook told members of a Long Island, N.Y., investment club in 2003, in a lesson that became part of his four-DVD series “Ugly House Workshop Video.” On-screen, Cook shows a dark and slightly blurry photograph of a toilet. “He didn’t have water in there, but he was using it,” Cook told his queasy audience, adding that the picture’s lack of detail was a blessing.

A commode like that makes most buyers run. Cook understood that he would never touch the toilet, never smell the shit inside it. And he wouldn’t pay anyone much to remove it, either.

“My contractor said it would cost $1,500 to remove that commode,” Cook told his video audience. “We got a guy who did it for $50.”

Cook recalls that toilet in the lunch interview. He says an unwitting landscape worker named Dave had actually used the toilet, so the lead contractor “told him he had to move it.”

Cook’s video is low key, but he works in the same cues some of the infomercial gurus do: “Can you make six figures a year?” he asks rhetorically, early on the first “Ugly Houses” disc. “I’ve made six figures in a month on two occasions.”

Charles Parrish, whose Investors United School of Real Estate, just a few blocks up Harford Road from Cook’s old office, features its own auction house, banks of computers, and a dry-erase board that challenges: “Are you making $20,000 per month?”

Founded in 1980, Investors United is the only school of its kind in the country, Parrish contends. And now he plans to open up campuses in other cities along the East Coast and, eventually, beyond. “We’re now starting what I call our Philly experiment,” he says.

On a recent Tuesday night, Parrish pitched his school to two dozen prospective students in a large Investors United classroom wired with microphones and video screens. He charges $10,500 a head for a yearlong curriculum, and offers a “money-back guarantee” for any who don’t earn their tuition by flipping real estate during the course.

“Ten thousand dollars is nothing,” Parrish says. “Believe me. That’s no money at all. If you can’t make $10,000 in real estate in a year, then something’s wrong.”

 

If Steve Cook is the vision of flipping burgers to flipping homes success, Patricia Koehler presents a cautionary tale for would-be investors.

After five years of putting her money into real estate, Koehler says, she’s $300,000 in debt and homeless, and her only remaining property is controlled by a tenant, whom, so far, she can’t touch.

Doretha Newkirk took up residence in a house Koehler owns at 1364 Sherwood Ave. in the Ramblewood neighborhood in September 2003. “This tenant moved into a beautifully renovated house,” Koehler says. “The [HUD] inspector even said, ‘Why are you renting this—you should be selling it.’” (Baltimore City has no record of any construction permits granted since 2002 on that property).

Koehler figures she has $45,000 invested in the Sherwood house, all totaled, but she couldn’t sell it quickly for its $92,000 appraised value. So she sold it to her life partner, Greg Davis, and kept effective control of the house. “He has better credit,” Koehler explains, so the mortgage rate under his name is lower than it would be under Koehler’s. Records indicate that Davis bought the house in April 2004 for $88,000.

Koehler originally tried a rent-to-own contract for the place, including a lease that required Newkirk, a grandmother taking care of two grandchildren, to maintain the yard. Soon the rent-to-own deal fell through and became an ordinary Section 8 contract, a federal housing subsidy for low-income people administered by HUD. In theory, it requires tenants to pay about 30 percent of their income toward their rent. In practice, most tenants pay zero. Newkirk took college classes and let the yard go. She skipped out on her security deposit and paid nothing toward her rent.

In May 2004, HUD cut off the $850 per month Section 8 rent payment due to a leaky sink and a dispute over a fence. Koehler says she fixed the leak with a $1 tube of caulk and would have done so on the day of the inspection—had anyone told her about it. The rent payments did not resume for five months. Koehler's monthly payment on the property—totaling $890, she says—continued. She says she and her 3-year-old daughter, Sophie, are living with a friend while fighting in court to evict Newkirk.

“Everybody assumes that we have all this money,” Koehler says. “I’m a single mom. I’m doing this to keep myself out of the hole. Ironically, my job—when not doing this real-estate crap—is as a coach for single mothers going into business.”

Like many newbie investors, Koehler has bought courses from the no-money-down gurus, including Parrish. “I paid Investors United their $7,500 three years ago,” she says. “I’ve bought the late-night infomercials.”

Formerly a paralegal for 15 years, Koehler says she got into real estate in 2000. “I’ve done seven houses since then and I’ve been screwed on three of them,” she says, citing problems with lead-abatement laws, city grants, and nonperformance by contractors. And now this. Koehler says she has “tried to work with” Newkirk to avoid evicting her, even after the lease expired last September: “I didn’t want to see myself as an evictor and throw a grandma out in the street with two kids.”

In Koehler’s analysis, all would be well if she could just either evict Newkirk or get Section 8 to pay the back rent and the new rent, which she has doubled to $1,700. She does not think she should have sold the house for, say, $75,000 or whatever the market would bear when she finished renovating. And she doesn’t understand why her half-inch thick stack of correspondence with Newkirk—in which she pleads with her tenant to either pay up or move out—does not serve as a legal eviction notice, the key step in getting Newkirk out.

“I’m popular, I’ve done it right. I’ve found creative ways to do things to help people, and I’m being screwed,” Koehler says. “My ass is against the wall. And it’s a big ass!”

The judge dismissed Koehler’s eviction attempt on June 27, and she vows to refile it.

In Newkirk’s view, Koehler has been unreasonable. “It’s been very devastating,” Newkirk says after a hearing on Koehler’s complaint. “There was sewage backing up in the basement,” Newkirk recalls, adding, “it is not my responsibility as a renter to pay for anything.” She says she will move out of the house by Aug. 1.

 

Standing before a nearly finished renovation on Texas Avenue in his Baltimore County hunting grounds, Cook says he sympathizes with people like Koehler. “I’ll never rent in Baltimore again,” he says, recounting a similar rent-court case he endured.

Cook was investing in Baltimore real estate throughout the late-’90s flipping scandals, and he says that in his experience, most people do wrong out of greed—but not necessarily with evil intent.

“Bob Beeman was only in the business for two or three years,” Cook says, speaking of one of the most infamous Baltimore flippers. “I think he was innocent getting started. I don’t think he got into the business to commit fraud.”

Today, lenders are not so wary, and plenty of people are writing big checks at auctions, banking on continued appreciation. Cook says he “can’t wait for the market to turn,” since it will glut the market with cheap houses—his stock in trade.

And then, of course, the cycle will repeat. “If there is a drop in values and the banks start losing money,” Cook predicts, “flipping will become an issue again.”

Cook says this in his flat, matter-of-fact tone. It is the voice of a man at peace with the Lord. If (or when) the real-estate market shrinks and lenders start complaining of scams, and lawyers start prowling for victims, Cook is confident he will watch again from the sidelines, free of legal liability.

He makes no apology for flipping houses—and questions those who would cast stones at his business model. “Why doesn’t someone go after car dealers who only give half the value of the car on a trade-in?” he asks. “Or Wal-Mart, which buys a stereo for $100 and sells it for $200?”

Cook’s questions are rhetorical, of course. He already has the answers he needs. But a question ends every post Cook makes on his Flippinghomes.com bulletin board, one that could serve as either solace or rebuke, depending on the state of one’s own heart.

After Cook’s name, as a sort of perpetual postscript, it says, “How beautiful would this world be if we all lived and loved like Jesus?”

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