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Think this is a bad time to flip houses? Think again.

Yes, even in the worst recession since the 1930s, investors are still finding ways to fix up decrepit houses and later sell them for a profit.

The business plan is a little different from the peak of the housing market, of course, when steadily rising home values meant any renovated shack could fetch a higher value just months later. Instead, investors have a new focus: short sales.

Essentially, investors find homeowners on the brink of foreclosure, and make a cash offer to the bank to buy the house for a low price. A bank will often agree to the deal to cut losses that stem from holding the property, foreclosure costs, legal fees, and so forth. The investors then fix up the house and sell it for a slightly higher price to a new buyer.

Though short sales have always been an option for banks, the current economic climate has fueled a boom in the tactic, said Marc Prestera, a real estate agent at Keller Williams.

Prestera, who works as the broker of record at the company's 150-agent Carmel Valley office, said he's never seen so many short sales in his 25 years in the business.

"Clearly the losers are the people who've lost their homes," he said. "The losers are (also) the banks because if they're selling short, they are not getting out of it what they put into it."

"The winners certainly the people who are in the position to take advantage of the marketplace and buy property at what they consider a very aggressive price," Prestera said. "The other thing that may be a nice win are the people who were locked out of the market maybe four, five, six years ago. They're the ones who are actually able to take advantage of the marketplace today."

In May, foreclosures and short sales made up 33 percent of the existing housing market, according to data released by the National Association of Realtors. In June and July, that number dipped slightly to 31 percent.

Essentially, a bank will look at every transaction and decide if taking that loss makes more sense in the long run, said John Mechem, a spokesman for the Mortgage Bankers Association.

"They (the banks) are beholden to their stockholders and directors to minimize losses on that property," he said. "So whether they're going through a short sale to someone who wants to live in the house or to an investor who may be looking to punt the house, it's not a huge difference to the bank."

The new faces of short sales

The grandson of a Nobel-prize-winning chemist, Imran Clark received a Ph.D. in molecular biology at the UC Los Angeles in 1999. But years later, frustrated and in debt, Clark decided to start his own business.

Darrell Kucan grew up in Portland, Ore., and worked in various jobs such as fast food and maintenance. He bought his first house, his grandmother's old home, in 1998. Four years later, his interest-only mortgage adjusted as his wife became ill and unable to work. Kucan had to sell the family home and eventually move in with his in-laws in California.

Kucan and Clark met when they both went back to school to learn about real estate. After months of untenable business ventures on their own, the pair decided to team up and specialize in short sales.

"Part of our success is because we've failed so much," Kucan said. "Real estate can be simple, but it's not easy."

They formed their partnership in February, and now say they have more business than they can handle. The pair juggles about 25 deals at a time, and they made about $100,000 in revenue in the past two months.

Part of the secret to their success, they say, is patience. A short sale usually takes anywhere from four to eight months to complete, and often requires trudging through layers of bank bureaucracy.

Also, they won't always take the highest bid on a house. This is based on the notion that the buyer's lenders, who have been much more conservative in the downturn, probably won't lend the full amount of the property.

Hardship considered

Short sales don't work in every possible foreclosure scenario. Homeowners usually have to qualify for a short sale due to a hardship that prevents them from paying their bills. In addition, a glut of foreclosures on the market means that banks often find themselves swamped with homeowners late on their mortgage payments.

A short sale can also affect a homeowner's credit score and tax bill. Though a short sale typically looks better on a homeowner's credit score than a foreclosure, it can still affect that person's ability to borrow money in the future. And loan forgiveness can trigger tax liabilities, in cases where the homeowner profits from not having to pay back the loan.

In the end, Clark said, the best feeling is to be able to help someone avoid the nightmare of foreclosure.

"Even if we make zero dollars, and that's the only way to do it, if we can accomplish that (avoiding foreclosure) we will do it and we have done it," Clark said. "And that's just good business because that person actually referred us to somebody else."