House Flipping - The disaster

[bleedingheart]

I watched this show over the weekend where this realtor bought a house for $70k. Thought it would be easy to fix and flip back onto the market.

but wait....


it had a mold problem, termites and the supposed 2 bedroom house turned out to be too small...so they made it a 1 bedroom house.

based on what they listed it cost around 40K to fix it up and....the realtor thought she could dump it on one of her friends!...some friend she is...

The other show I just caught the tail end of showed this couple that bought another house as an "investment" to flip...but in the end the wife had to return to work so they could pay both mortgages so that they wouldn't end up foreclosure on their home and the other one....

in the end I wonder how many people are getting all hyped up to be real estate tycoons and end up in bankruptcy??

[skygazer]

1. People looking for an easy buck

If an easy buck were so easy, more people would be finding it. :shrug:

[ScreamingMeemie]

2. Take it from a real estate appraiser....far too many.

Although the term "flipping" has been misused a lot over the years. Flipping to me is when deeds are passed back and forth with no money exchanging hands in an attempt to inflate real estate values. :hi:

[bleedingheart]

3. didn't know that about flipping

the shows amazed me on how people are easily conned into thinking they can get rich quick...

there is a house in my mom's neighborhood....one of those homes where a lady with 200 cats lived. By the time the humane society and health dept got involved it should have been torn down. BUT...some lady paid 40K for it and remodeled it...but she hasn't been able to sell it....sadly I bet she will lose her shirt on that house deal...

[ScreamingMeemie]

4. It is indeed very sad. In our neighborhood right now there is a court

case against HUD for knowingly selling a home with a crumbling foundation (at top dollar to boot) after "covering" the external evidence. HUD, in turn, is trying to blame it on the original appraiser....all the while the owner is trying to save a home not worth the bricks it was built with.

Most people do not realize how toxic things like bat and squirrel poop can be when they get in the walls.

[flvegan]

8. Around here, flipping is when

Say, a foreclosure is being bought using money from the people that they have already contracted to sell it to, at an inflated price, of course.

Sounds somewhat like what you're talking about too. If we encounter it at the closing table, the deal's off.

[ScreamingMeemie]

12. Here in Michigan, and to the Appraisal foundation (which is national)

it is labeled as the transfer of title with no cash to inflate real estate values...and it is fraud and therefore illegal. They are busting up flipping rings all over the country right now.

[Xithras]

5. There's three things required for a good flip (I've done it twice)

1. You need to get the house at low market value when compared to the NEIGHBORHOOD. I've been amazed at first time flippers who will walk into a house and offer $20k to $50k over the asking price, when the asking price is already even with the neighborhood comps. They don't realize that every dollar they offer up front is one they'll lose later. The rule is: If it isn't a deal, it isn't worth your time.

2. You need a VERY, VERY GOOD home inspector. Don't just pick someone from the yellow pages, and NEVER use an inspector offered by either your agent or theirs. Your inspector needs to be highly experienced, and understand that the house will be reinspected when the house is flipped. Spending $1,500 for a good inspector may seem like a lot when you can hire others to do the same thing for $500, but the difference is that the $500 inspector will probably miss something, and do you want to take the chance that the "something" will be a $20,000 mold problem, or a $30,000 foundation?

3. You MUST be willing to do some work yourself. It's actually rare for a flip to be so profitable that you can hire all of your work out. Learn to paint. Tiling and floor installation aren't all that hard either. On the other hand, you need to know which jobs are BEYOND you. A shoddy do-it-yourself job can cost you far more in the final sale than you would have paid to have something done professionally. I once heard about a guy who had a ceiling cave in DURING his open house because he botched a plumbing job. It's a fine line to walk, but some basic electrical, paint, and carpentry skills are essential. Oh, and NEVER do your own landscaping. Curb appeal is essential to a quick sale, so you should let a professional landscaper design something that will hook them before they ever walk through the door.

The flippers who make the most are typically general contractors with real estate licenses. They don't have to pay to have every little thing done, they can save thousands in real estate agent fees, and they can generally do their own inspections to see what they're buying.

Armchair flipping, where you buy a house and watch comfortably from a distance, will lead to financial ruin more often than profit.

FWIW, I've flipped two homes in four years, and made about $100k in the process.

[bleedingheart]

6. you are already way ahead though cuz you actually have thought it

through.

My hubby and I wanted to buy a victorian home, it needed a lot of work but had a great lot and great location. problem was that the seller wanted way too much for the work it needed. In fact we brought along a general contractor who told us that the house was worth only about $50k in cash but no more (balloon style victorian)..

In the end some sucker paid full price ($120K) and I can tell that the house is still in poor shape cuz they didn't have the cash to fix it properly...

[Xithras]

7. See, there are people who WILL do that sort of thing.

The second home I flipped was a great example of what you need in order to pull it off. It was a one-owner 1940's ranch that had been sadly neglected by its elderly owners. It sat on an awesome .3 acre lot with big yards, but they hadn't been kept up in a decade, and the entire house was hidden behind overgrown bushes. When I walked inside, the finish was worn completely off the hardwood, the original cabinets were falling apart, it smelled funny (cat pee in the 40 year old bedroom carpets), and it was cave like because of the bushes blocking the windows. Oh, and the roof was about to cave in.

The house was dark, dreary, and depressing, which is why it was offered for $175k in a neighborhood that comped at $250k. I had an inspector out there when I looked over the home for the first time, and made the seller a flat offer of $150k. I was suprised, at first, when they accepted it at $155k...until I learned that the owner had only paid $15k for it when it was built, and the money was all profit for them (it had been paid off for decades).

I sterilized the house, redid the floors myself, replaced the kitchen and bath cabinets myself, replaced all of the outlets, light switches, and fixtures myself, painted the house myself, and rebuilt the collapsed fences myself. I paid professionals to replace the roof, landscape the entire property, replace the hot water heater and rebuild the HVAC unit, and recoat the bathtubs to make them look better.

Original sale price: $155,000
Money invested for repairs, mortgage overhead, construction loan fees and interest, and real estate agent fees: $47,000
Final Sale Price: $271,000
Profit: $69,000

You CAN do it, but I have to point out how much work I put into the house myself. That flip chewed up ALL of my weekends for four months straight. If I'd contracted out, I'd have finished the house faster, but would have only made a small portion of the profit. If they hadn't accepted the lower offer, I'd have lost money.

The biggest problem with flipping is really finding that "deal". If you jump into a house that isn't a deal compared to the comps, you'll NEVER make money at it.

On edit: I forgot to mention, I also put all new appliances and Corian counters in the kitchen. A good kitchen will sell a house on its own, so it's NOT the place to go cheap when doing your updates.

[OldLeftieLawyer]

9. I saw part of that show,

while flipping around. I couldn't figure out what was going on, but I did see her showing the house to her old friend, and I thought maybe it was a show about training the developmentally disabled.

Can you imagine anyone dumb enough to take a client into a place in that condition?

I once got in a lot of trouble during a trial when I referred to the work done by real estate agents as similar to something done by trained monkey. I apologized afterwards, saying that my comments were unfair to monkeys.

With the new bankruptcy laws kicking in on 10/17, and the credit card companies doubling their minimum payments, you watch and see how many people lose their houses........................

[bleedingheart]

10. hahahah...I like your comments...

later she took the friend back after the work was done and her friend was luckily smart enough to run away...

[no name no slogan]

11. Real estate speculation == "day trading" of the '00s

remember the "day trading" fad that engulfed the country in the late 1990s? Everybody and their aunt Mabel were going to get rich, taking advantage of penny fluctuations in the stock market. Instead, lots of inexperienced investors who had no clue lost their shirts. The current speculation in real estate reminds me a lot of day trading.

Need proof? Just look at the skyrocketing number of interest-only mortgages that are being issues, especially in markets where they haven't existed previously. There's a huge real estate bubble right now, and many residential property values are over-inflated by 20% or more.

When the "unwashed masses" start getting into highly speculative investments, chances are it's a good time to stay away from them.