Real estate speculation sounds easy enough just locate an undervalued home, make some minor renovations and flip the property, with returns approaching 200 percent.

But like any pursuit, it can be fraught with complications, especially with the local housing market cooling off and attractive properties harder to find.

L.A. has more than its share of speculators, and their methods vary widely. Some have turned it into a full-time job much like day traders in the late 1990s while others buy and sell on the side. Some quickly flip properties, while others buy contracts for homes that haven’t even been built, only to turn over those purchase rights once the units come to market.

What they all have in common is an itch for the big payday even if there’s an element of risk involved. After owning a home for less than 90 days, investors can make more than a 200 percent return. And through quick refinancing and home equity lines, some have learned how to sink less of their own money into remodeling older homes they plan to resell.

“Since 2000 there has been a doubling of the amount of properties purchased for investment purposes,” said Robert Kleinhenz, deputy chief economist with the California Association of Realtors. “In all likelihood, the degree of speculation is as high as it’s ever been.”

As always, success attracts imitators. As word of the profits made by the initial speculators has spread, more investors are getting into the market.

Nationally, investors accounted for 14.5 percent of all home sales in 2004, compared with 12.1 percent in 2003. Even more striking is that between 1998 and 2002, investor sales averaged 7.5 percent, according to a report from Credit Suisse First Boston.

It is not a game for everyone. Speculators will often buy homes in bad condition, with the idea of refurbishing the property and reselling at a much higher price. But that takes time, money and patience.

And with the market so heated, some economists are concerned that the speculation has artificially inflated home prices to the point where it might affect the overall economy.

As a result, some speculators have curtailed buying homes locally or are holding them for far less time, lessening their exposure. But others are carrying on, buying homes with the intention of making 200 percent returns. Here are some stories:

New role


While an acting career attracted Mark Murphy to Los Angeles, it was the city’s real estate that made him a small fortune.

It started when he and his wife, Kris, also an actress, bought a house in the Hollywood Hills five years ago that had a crumbling foundation and was in disrepair. After fixing it up, they realized the home’s value had increased by 125 percent.

Murphy figured that by buying homes and sinking no more than 5 percent of the purchase price into the property, he could resell for a tidy profit. “Besides, I was leery of the stock market, which is too volatile,” he said.

Using savings, Murphy and his wife bought two Silver Lake bungalows for a total of $420,000. They put 10 percent down and sunk $25,000 into new plumbing and electrical, a roof and a paint job.

Within 60 days, the homes were back on the market. Priced at $599,000, they sold for $605,000. “At the time, we were fearful of the real estate bubble and we didn’t want to be caught carrying two mortgages,” Murphy said. “But where else can you invest $67,000 and make a 200 percent return in two months?”

With gains from the bungalows, Murphy bought a four-unit Echo Park apartment building for $550,000. He fixed up the units and leased up the building, which he refinanced for $1 million. “Then we really got on a roll,” he said.

Next, Murphy paid $400,000 for another Silver Lake bungalow on Griffith Park Boulevard, but this time the home turned out to be a money pit. The property had a faulty foundation and to shore up the hill the home sat atop, a retaining wall had to be built.

“It was my baptism by fire,” Murphy said. “I told my wife every night before I went to bed that this house won’t beat me.”

When the repairs were complete, the market was flooded with similar homes. With supply high, Murphy ended up getting $620,000 $40,000 less than the asking price but still resulting in a 90 percent return.

“It’s good but it’s not a home run and it doesn’t enable you to buy another revenue-generating property,” he said. “It left us with a lot of cash to live on or pay our bills, but that wasn’t the goal. The goal was to create long-term wealth.”

The couple’s most profitable property was literally around the corner. Looking for their next investment, they saw a real estate agent putting a sign in front of a dilapidated Silver Lake bungalow. They pulled over.

The asking price was $360,000, while neighboring properties were going for close to $800,000. “Site unseen, I told the broker I’d write an offer at asking if he took down the sign right then,” Murphy said. “If he hadn’t taken down the sign, I would have come back an hour later and taken it down myself.”

Fixing up the home took six months because it needed a new foundation and a new roof. They also built a 500-square-foot addition. To pay for the work, the couple took out a $120,000 equity line.

The property sold in May for $850,000. “That was a grand-slam home run,” Murphy said. “To date, it’s one of the nicest properties I’ve ever redone.”

Beats cutting hair


A hair stylist by training, Brandon Hoskins started flipping properties when he found out he could sell his condominium and use the gains to buy a single-family home. “I quickly realized I could make more money doing that than standing behind a chair all day cutting hair,” said Hoskins, who gave up his salon job.

Hoskins and two silent partners began focusing on “architecturally significant” homes and restoring them to their original design.

“Even though it’s about making money, because you have to make a living, it’s more about the architecture for us,” he said. “It’s not about building a big ugly house in Beverly Hills just to make a quick buck.”

In 1995, when real estate was in the doldrums, Hoskins bought a house on Doheny Drive above the Sunset Strip for around $650,000 (the asking price was $1.2 million). The group fixed up the home and resold it for a 200 percent profit, though they would have made lots more if they had held onto it.

The group holds properties for less than a year and uses home equity lines to pay for the remodeling work. Typically, they expect a return of at least 100 percent.

The last home they restored was a mid-century modern on Mulholland Drive in Bel-Air. Hoskins said they paid $925,000 for the property; the Multiple Listing Service shows a buyer paying $1.475 million (Hoskins won’t comment).

Lately, Hoskins has had trouble finding properties, as competition increases for the architectural gems. “L.A. is just too competitive now,” he said. “If something is a good deal, it’s eaten up instantly. It’s like sharks out there.”

Hoskins sees trouble ahead for million-dollar homes. He believes that the trade-up market, where homeowners sell their property and use the gains to buy a nicer home, is slowing down.

The market, he said, is fueled by the Baby Boomer generation, which is starting to use home equity gains to prepare for retirement. “Top-end homes are now being reduced,” Hoskins said. “Either people are out of their minds in what they are asking, or people aren’t trading up as much and I don’t see prices being out of line.”

Hoskins figures appreciation rates will only drop into the low-single digits. Still, he is preparing for a possible downturn by selling his $1.6 million Nicholas Canyon Road home and downsizing into a $600,000 condo.

“I want to get into something where I have a more manageable mortgage,” he said. “I have a variable rate loan and if I stayed I would refinance but it would be more than I want to pay.”

Staying diversified


A little over six years ago, Rich Valenza sold his New York condominium and moved his apparel company, Ward Rhobe Management Corp., to Los Angeles.

While the company, which makes all CBS Sports-branded clothing, remains successful, Valenza is finding real estate even more lucrative.

Take his most recent project, a condominium he and a partner purchased three months ago south of Sunset Boulevard on Doheny Drive. After investing $75,000, including carrying costs and new bathrooms and a kitchen, the two will make a $110,000 profit.

“I usually hope to double my money,” Valenza said. “With the condo, that didn’t happen. But for us to clear $110,000 on a three-month investment isn’t bad.”

Since he started buying investment homes six years ago, Valenza has flipped about 11 properties. But for all his experience, the process can be nerve-wracking. “Every time I go into escrow I stay awake at night worrying,” he said. “I keep thinking ‘What if there’s an earthquake or some disaster?’ I would lose everything.”

The first house Valenza flipped was in North Hollywood, just off Burbank Boulevard. He did lots of work on the property and when he put it on the market he got offers from people who saw the photos posted on the Internet. Valenza ended up getting the highest price for any house in the neighborhood but it wound up teaching him a harsh lesson. “The buyer came back after an appraisal and I had to take a price reduction,” he said.

Valenza said he realized “you can’t overbuild for the neighborhood. Now I only put into a home what the neighborhood can support price-wise.”

With his sister and brother-in-law as investors, Valenza’s next project is a $1.2 million home that overlooks Lake Hollywood. The property has a view of the Hollywood sign from the front yard, but no windows with the premium sightline.

Barring a catastrophe, Valenza doesn’t see the real estate market tanking anytime soon.

And what if the real estate market sours?

“Well,” he said, “I’ve always got the apparel business.”