House flipping

Does anyone know about "house flipping" - the practice of buying fixers, making mostly cosmetic repairs, and selling them quickly for a high profit? The hypermarket is the SF Bay area is making some people big bucks. My house alone has doubled in value in the last 4 years - whoa baaby! I need to get on this horse --

If anyone has ever been invoved with "house flipping", drop me a note and give me your insight.

Thanks
W.

 

While I've never heard it referred to as "house flipping," I don't think that there's anything new or different about this practice. The people that I've known who were involved in this were all construction professionals, and in one case, a certified home inspector. This allowed them to go into a house and with a great deal of accuracy, determine how much work would be required, estimate how much that would cost, and in many cases, do the actual work themselves. These guys earned a substantial portion of their income in this manner and would turn over a number of houses every year. As a side note, I'm aware of a TV show on the Home & Garden network in which houses are given a $2,000.00 makeover prior to being place on the market. This seems to result in the sellers receiving $5,000 - $10,000 more than they expected as the sales price. While it seems like a great idea, it also seems like you could really get shafted if you make a mistake and buy a house that has big, hidden problems.
Jack

 

Yes, and even the pros are not immune. I think that Bob Vila lost his PBS show after a house renovation turned out to be much more expensive and time consuming that anticipated from problems that were uncovered after the project got underway.

Best wishes----Jim

 

Was that the beach house?

 

Mr. Engineer,

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No. The beach house was on Vila's later show called "Home Again." In the beach house series (in Malibu, I believe), Vila tried to reconstruct the house as a "smart house" with lots of electronic gadgets. Afterwards, the owner (a well known actor whose name I can't remember) complained (and I believe sued) because many of the gadgets did not work.

The one I referred to was in Vila's PBS show "This Old House". The house was in Massachusetts and was quite old. Once renovation began, they discovered major structural problems that were required to be brought up to code. It seems that the owner had not expected the complications and wanted to stop, but once the problems had been identified, the building code required that they be dealt with. The tension between the owner and Vila was very evident in later episodes in the series.

Best wishes----Jim

 

Thanks for the link - very interesting

 

Thanks for the link - very interesting

 

Hmmm... interesting.

I wish I could remember the details, now... but I distinctly remember someone I know who, at the time, worked for PBS, telling me that Vila -- whom everyone could see didn't know a damned thing about remodeling or home repair, etc. -- was more or less universally despised almost from the git go; that he was a condescending, self-interested shmuck, etc.. As time went on, apparently, he allegedly did some not-so-honorable things that, when discovered, were hugely frowned upon...

...things like, for example, in whatever town they were in, letting whichever contractors could grease Vila's palm with the most under-the-table cash be the ones that appeared on the show, regardless how good they were at what they did. This is apparently something very well known and oft talked about among West Coast HVAC, plumbing and electrical contractors... to the point of being almost legendary because in the case of some of Vila's West Coast programs, it apparently resulted in Vila allowing well-known HVAC, plumbing and electrical scammers to appear on the program which highly insulted the honorable contractors who all knew who were the scammers in their profession.

Apparently Vila's lack of a moral compass was really irritating someone at Weyerhaeuser which, at the time, was This Old House's primary underwriter. The reason I asked about a beach house is because I have it on very good authority that Vila's days on This Old House became numbered when that program did a huge remodel on some kind of home either right on the beach, or back from it so marginally that any really big wave could still reach it... though I can't remember which coast it was on.

Apparently, either before the remodel of this near- or on-beach home was completed, or maybe just after, the house either washed away completely or damn-near did -- which was particularly problematic since a huge part of the reason for the remodel in the first place was to stop that very thing from happening. From what I understand, when the incident was investigated, lo and behold, shoddy workmanship of the kind typically performed by the very kind of palm-greasing low-lifes that Vila often allowed on the show was the main reason.

The word I got was that whomever at Weyerhaeuser Vila had been such an irritation to for so long absolutely blew a gasket when this whole beach wash away thing happened... and apparently producers at This Old House, and at PBS, were told by this person that if Vila didn't go, Weyerhaeuser would. And, apparently, the guy really put his foot down about it.

The old house in Massachusetts to which you refer may just have been the straw that finally broke the camel's back... and so is the incident to which many people attribute Vila's firing. But, trust me, the house that either washed away, or damn near did, was where the end of Bob Vila's on This Old House began.

 

Oops. I was editing the last sentence of my previous posting fast because I was afraid the 10 minute editing window would run out... which it did. Had I had the time, it would have ended-up:

• But, trust me, the house that either washed away, or damn near did, was where began the end of Bob Vila on This Old House.

My bad. Sorry.

And, stupid me, I forgot to write, in that post, what I was gonna' write about "house flipping." I mean... heaven forbid we actually try to stay on topic. [grin]

It's funny because one of the San Francisco TV stations did a news piece on "house flipping" this very (Saturday) morning.

Apparently it's fueled by, and what makes it a little different than the common, long-time thing that Jack Tracey was talking about in his post, above, are two things:

1. The outrageous housing marking the the San Francisco Bay area... er... well... really... in most of Northern California, at this point; a housing market so strong that someone who buys a brand new home and doesn't do a damned thing to it but holds-on to it for a lousy year can sell it for $100,000 more than he paid; and a housing market so strong that someone who buys an older home -- not even necessarily a fixer-upper -- and puts maybe $5,000 (or less... sometimes much less) in mostly cosmetic repairs into it, cleans it up, and furnishes it sparsely but cleverly with cheap area rugs, "antique" (read: worn out but still serviceable after a coat of pain) furniture, Wal-Mart draperies and a few silk flower arrangements can realize a ten-fold or more return on their little $5,000 (or less) worth of cosmetic repairs after only one or two months of ownership.
   
2. Changes in the tax code that were suppose to benefit homeowners, generally, but which have inured in the short-term to the benefit of "house flippers," mostly, which permits the seller far greater tax benefits than before.[/list=1]Of course, the housing market in Northern California -- particularly in the San Francisco Bay area -- has been artificially high since the near simultaneous fall of high tech and the stock market. People here have, for a long time, now, diverted their stock market money into real estate... skyrocketing prices and making decent housing virtually unaffordable for the average citizen. House flipping just exacerbates that problem. In fact it has become so much of a problem in some cities that places like Baltimore have long been struggling with legislation to curb or even stop it.
   
   Some people in Northern California are quitting their high-paying jobs and are becoming full-time house-flippers. One woman interviewed on the news piece I saw this morning quit a $135K/year job to become a house flipper. She said she makes at least $50K on an older house (after only a month or two), and around $100K on a brand new one (after only 6 months to a year at most). Her target (and she said she's almost there) is to flip one house every two months. If those six flips per year are a mixture of old and new houses, that's $300,000 to $600,000 in gross profits per year. Even if she only pocketed a net of $250K per year, she's doubled her income -- and is probably having more fun.
   
   Of course, history clearly shows us that hyperactive housing markets of the sort that can support house flipping probably won't last... so quitting one's job for it could be quite risky. But, then again, if a person can average $500K gross per year for only three or four years, then when the bottom finally falls out of the market s/he could afford to go back to work at a Burger King and would still probably have very little about which to worry.
   
   I guess my problem with it is that it just fuels already artificially high housing markets and, therefore, keeps the hard-working middle class from being able to afford to own a decent place to live. Anything that helps to erode the middle class and widen the gap between rich and poor cannot be a good thing.

 

1. 
   
   
   Yep, it's a crazy market. In seven years, I made $140,000 on my house in Fresno, CA. That's a rather good deal,but when you consider that most of that happened in two years...
   
   However, I should mention that Fresno has had a sort of artificially low housing market (particulary because we're a city of 400,000 in this state) that has finally begun to come more in line with the rest of the state.
   
   
   
   Tom Nixon

 

My mother always said it was because of his Sears ads (this was back in the day when PBS ran 5-second "underwritten-by" announcements, not 15-second corporate foundation blurbs).

jon
---
whose house was built in 1895, 1898, or 1900, depending on what records you believe.

 

You know, Jon, when I saw your announcement about your baby (congrats again, btw) the first thought I had was the Chief????!!!!!????

I trust mother and child are well and wish all of you the richest blessings of God the Holy and Undivided Trinity.

 

Flipping houses is just one of many ways to make a buck in real estate, as others have already mentioned. As a real estate investor myself, flipping isn't something I've gotten into. I prefer to buy and hold units as rentals. However, if the right property came along, I'd do a fix-n-flip in a heartbeat.

Mr. Engineer, if you are thinking about flipping your own home, now may be the time to do it in your market. Of course, this depends on whom you believe in regards to the whole "bubble" thing.

If your home has doubled in value in 4 years, then that tells me you have lived there longer than 2, which is the requirement to avoid capital gains taxes. If you're married, you can walk away with $500,000 tax free from the sale of your home.

For folks that get into the fix-n-flip business on a regular basis, there is one major drawback, besides the tax situation. Typically, you will have to get what is called a "hard money loan" in order to purchase the property. A hard money loan is a very short-term mortgage at a fairly high interest rate that comes due in full at the end of the loan period.

For example, I have access to some financing right now if I wanted it that is structured as a 3 to 36-month hard money loan at 11 to 15% APR (based on term), with the monthly payments calculated as either a 15 or 30-year amortization. Plug that into a web-based mortgage calculator or your HP-12C or HP-48 finance app and play with those kind of numbers to see the payment results. Add to that the fact that you are pumping $Xk into repairs and cosmetics, and you can see the capital required for a project.

But again, in the Cali housing market, there is a bunch of money to be made doing this. In my area (north of Denver, CO), the appreciation rate is too slow for most properties to do this with.

Hope this helps some.

-Jassen

 

I agree with your mother.

 

Flipping

I've been doing this in Florida a few years. I'm also licensed, so I must disclose this before any discussion of the subject property. It is not as easy as some of the T.V. advertised courses portray.
Low interest rates started the stampede. I've seen $50k houses quadruple in price over night. Without rehabilitation. When I purchase a property or house I have a thorough examination, both physical and paper, and determine my costs to make the place something I would live in. I use only quality materials and craftsmen. Never had a complaint and always made more than I expected. Integrity is the only concern anyone should consider before entering into the field. It serves as your best advertiser and guarantees a continuous flow of business. Scumbags, out to make a fast buck, end up in the slam or a ditch. Depending on the customer. Greed can ruin any lucrative business and Florida is cracking down, since the hurricane that devastated S. Fla. in the 90's. Honest business folks welcome state oversight. So figure to have at least $1-2 hundred k you can afford to tie up for awhile.
And learn the real estate laws of your state. Your pie in the sky may be your state paid vacation with Bubba in his 8x10 condo.
Remember, Nullum Gratuitum Prandium. There is no free lunch!

 

Jeeesh....

Speaking of gayness and house flipping parties... ....One book that I highly recommend to people is "Weekend Millionaire's Secrets to Investing in Real Estate" by Mike Summey and Roger Dawson if you are completely new to this. Also, "Real Estate Riches" by Dolf de Roos (part of the Rich Dad/Poor Dad Advisor series) is pretty good, too, as a primer.

-Jassen

 

Flipping is risky business. You really need to know what you are getting into, how much it'll cost you to fix it up, how long it will take you to fix up, and how long it will take you to sell. If your calculations are off in an area or two it can throw the whole project off. Combine that with the fact that EVERYONE is now in the real estate game, fueled by low interest rates, and now on top of the risk you've got a ton of competition.

That said, if the perfect flip opportunity came along I'd take it, but it would have to be perfect. I prefer to buy and hold. I own three houses now and am closing on another in June. Allow the tenants to pay down the mortage and appreciation to build your equity, plus enjoy tax deductions along the way (especially if you can be classified by the IRS as a real estate professional). I prefer single family homes over townhomes or condos because tenants in SFH's generally stay longer and SFH's generally appreciate in value much faster.

Good luck,

Pug

 

Re: Flipping

At least there were $50k houses - on Long Island the nearest equivalent would be a $250k house, if you could actually find one of those available! The median home price here is #6 in the US at $432k.

Cheers,
Mark

 

I made $102K off my house in an up-and-coming neighborhood in the Twin Cities area in three years. I'm guessing a portion of the increase in value was the remodeling work we did--less than $10K worth, but made a HUGE difference in the appearance of what was a very outdated, depressing interior--but nonetheless, made me think that were I to accelerate the process a bit, remodel FT rather than on the side, weekends, perhaps could do this for a living, at least a partial one.

Might beat lawyering--talk about depressing!