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Flippers Beware

I have been in the proceess of getting a home ready to sell the past three weeks. When I bought it I was hoping to have it on the market next week. Things just take longer than I usually plan and of course it costs more to make the necessary upgrades than I had planned. I do some of the demolition work and help out a bit. However, I am not a finish carpenter and don't pretend or try to be. I contract out the work that I know I cannot do professionally. .

I recently had a friend say to me, "I have been reading about flipping a house and have been reading and learning everything possible." I asked him if he was working with a realtor and he said no. I advised him to give me a call and he said he would. I see him every week and yet he has yet to call me.

It is so easy to walk into a vacant house and spot a home that someone has bought and is trying to flip. Especially if it is someone who is not a professional remodeler. Typically these homes are in need of repair to the repair. Recently I showed a home to a client where the attempted updates to the kitchen included a two piece granite top that was at least half an inch off at the seam. They had also attempted to update the kitchen without installing a dishwasher.

Often these "get rich quick flippers" also will not bother getting a home inspection. So when they try to sell the home things such as electrical problems or even worse mold problems raise their ugly head and the "flipper" ends up losing money.

Once again applying the Golden Rule is the only way to "flip" a home. If you fix it up so that you want to live in it, you are happy to pay the price you are asking and you are willing to buy a home warranty for the home then it will sell quickly. If you made a little money during the project consider yourself fortunate. Odds are the first home you flip will make little or no money however. So ask yourself, "Am I patient enough to learn from the process and willing to do some real soul searching before I do it again.

Just one last word about flipping. If you are trying to buy a bank owned home be ready to wait and wait and wait. Be aware also that the bank may be looking at more than one potential buyer and that if your bid is not high enough you may lose out on a home after waiting for weeks and even possibly months.

Posted by Paul Campbell on 09/13/2009 02:39 PM

Comments (129)

Flipping a House. in the Home Buying Channel

flipping, buyers, bank owned homes, paul campbell, real estate, rector hayden, realtors, lexington, ky, kentucky

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129 Comments on Flippers Beware

SEP

Excellent tips. Your friend is missing out on a huge amount of experience and advice by not contacting you. He will probably have to learn the hard way.

Hard way in Flipping = $$$$$

I can also spot a property that had been purchased 'to flip'. Flipping isn't easy money--but a lot of folks have to learn that the hard way. Your friend will find out soon enough!

By the way if you are planning to flip a home the week after you buy it, better think again. FHA requires the seller own the property for 90 days before a new buyer can finance it. Most lenders are following suit with all loan types now.

Paul...

My last flip, flopped and I did learn the hard way :)

TLW...ROAR!

house flipping can be very profitable but if you can't buy at a good enough price to do it right and still make money keep walking, something else will come along

We buy at the court house steps and finding unbelievable deals

Also keep iin mind that many lenders will limit the amount of money above the original purchase price the buyer can pay for a property. The longer the flipper owns the home, the higher the percentage of profit he or she can get. There was talk of changing this. But not so long ago, I had a buyer who bought a wreck for 85K and now it was reaonsbly worth 140K with the work he had done. Yet the bank would not allow him to get that for the home if it were to be financed. He had not owned it long enough. 3 months was too little time. Over 6 months gave him more leeway.

As I said, they were talking of not doing this much more, but it is worth checking out before you buy if you are planning for a quick turnaround.

Personally, my buyers have found that if the property is bank owned things can move rather quickly, especially if it wiill be a cash deal. It is the short sales that can take ages, at least in our market.

I just had a recent experience with a Buyer...we knew the house was flipped and even noticed some less than perfect work done on the interior. Buyer decided to move ahead to inspections and the problems that uncovered were mind boggeling. Pretty much anything that mattered...roof, foundation, plumbing, electrical etc....all had major problems....I looked at my Buyer and said RUN! When I told the Listing Agent that we were not going to pursue the pruchase he was shocked. Called back to request the inspection report for his client to learn what the problems were, I told him we would be happy to share if his client would split the cost...not interested. Big mistake in my book...kind of feel sorry for this guy though for he is going to lose his shirt on this home.

Good post you make the money when you buy the house. Flipping is one of the most dangerous forms of real estate investment because there has to be a lot of equity in the deal if you are going to try and turn it around quickly for a resale. Thats why I like buying for a cash flow because even if you have to put more money in the property to fix it up then you expected you were in the deal for cash flow and are holding it long term anyways.

A very informative post and responses. John I think you mean financing/refinancing the property by the investor, but if the investor was selling then there should not be a problem financing it. Flipping is not for the fainthearted, it can very quickly turn into a very expensive mistake, although lots have benefitted from flipping too.

Excellent point. People either have no idea what they are getting into or they purposely try to conceal the flaws, hoping for a sucker. I think it is going to become harder pass a home off that has problems with lenders being so much more stringent.

I had a situation similar to John's. The lender even REQUIRED my clients to outline all the upgrades done and approximate cost of each one. My clients were pretty stressed about the whole thing. The appraisal had already come through with flying colors...so they were surprised by this requirement. :)

I'm in the midst of my first flip. I've helped many clients with their flips, now I'm doing my own. We're 3 months past deadline and on budget. I guess I couldn't have it both ways. It's going on the market this week.

I still get calls by 'investors' who need cash out of their properties to stay afloat....

These aren't investors.... they are speculators. And many have bad credit now because the get rich quick scheme wasn't as easy as they were told at the seminar.

Investors who won't spring for an initial inspection on the home before writing a contract are potentially hindering their bottom line on the return.

You are so right Paul. Great blog... -fix it up and use the GOLDEN RULE... i like it...

I agree that Flippers should always give a Home Warranty to buyers as a post settlement solution to most of the lurking UNKNOW !!!!

The recent housing boom created many would be flippers and TV shows about flipping touted the easy money that inexperienced investors could make. Fortunately most of them are now broke, for they damaged more than the purchasers of their over-priced and poorly remodeled homes. Experienced and savvy investors can make money, but it's not nearly as easy as the TV shows portrayed.

info on the 90 day Restriction http://twurl.nl/6fzoat

the days of easy flipping are gone for now not that there is not a property that fits the scenario but for the most part flipping just may not be a good idea in most cases

I've seen banks apply the 90 day rule that FHA enforces. Flipping a home is becoming more and more costly.

Lately I have seen some really good fixer uppers. Some guys are doing great jobs. Others not so great.

I can spot a 'flip' too. And you really have to recommend to the buyer that they inspect, inspect, inspect. And then the seller gets mad at all the punch list, and major items, you give them that need to be fixed. When we did our final walkthrough on one flip, the buyer and I discovered that the dishwasher didn't have hot water running to it, just cold. The inspector had a jillion things to check and that one detail slipped through. Guess who got a plumber to come out and hook it up. Moi!

Sarah in Nashville

As TLW said, flips can definitely flop. and sellers need to be prepared for this eventuality.

In Oregon a licensed real estate agent who buys their own property to fix 'n flip also have to have a general contractors license (including being licensed, bonded and insured as a GC)

I've been in several flips lately. One was absolutely terrible. The work was sub-par and the finishes were cheap. They didn't spend money right at all... Another has one of my buyers closing on it in a couple of weeks.

Do it right and don't try to wring the pennies out and it will be ok...

Thanks to everyone who responded. I was at a neighborhood potluck this evening and came home to so many good comments. Very informative also. I was not aware of the FHA requirement of 90 days to finance after purchasing a home to resell. I learn so much from the Active Rain Community.

Have a great week everyone. Paul

It amazes me how some buyers decline to have a home inspection or have a real estate attorney review or handle the closing. It also amazes me how many flipper wannabes continue to try and get rich quick after buying a "program" from some late night infomercial.

Paul,

You are very right to be cautious. Many flippers simply do a lousy job and don't make any money.

Brian

SEP

Paul-

Flipping is a science and if you don't know what your doing your going to lose big. Thanks for the tips.

Flipping appears to be making a come back- and some of the REO's and short sale properties are contributing to its return- I showed one recently, which was gorgeous! Well done by a professional construction company who purchased 3 months ago as a foreclosure. It is a home from 1900-and to see how nicely it can be renovated was impressive- one problem though is functional obsolescence- the bedrooms and closets are tiny, As a result he is having trouble getting an offer.

There are pros and cons to everything- but certainly for PROFESSIONAL Contractors, there is money to be made and for buyers ALWAYS get a home inspection regardless of who did the work.

And now with investors having to hold the properties for 90 days or more before banks will loan money to the new buyer isn't helping either.

Waiting weeks or months on a bank owned home is rare. Long delays are usually not due to competing offers, it is due to problems with title or how the attorneys handled the foreclosure.

I have flipped a few and it can be dangerous in a declining market.

Thanks

Phil

Home buyers need to watch for flipped homes. The financing may be limited for the purchaser if there was a recent transfer. Some flippers are good at covering up problems such as mold and plumbing leaks so a good home inspection is always recommended.

Good points!! Unfortunate that lots of people think they know more than they really do. Hopefully others will see this post and "click" to their real abilities.

Be careful with FHA financing as they request a 6 mo chain of title and will not participate in anything resold in less than 6 mo.

One of my agents is flipping one now, and they have done a beautiful job, cut corners where they could, but have done nice high end sinks, scraped the ceilings and a first class job on all of it, that is they way you have to do it, if you want to sell with the least amount of hassle, in the least amount of time, for the most amount of money! Happy flipping to those with enough stamina to do it!

If you're going to flip, you're going to want to have some first hand experience in home repairs, and be willing to pay professionals for the things you don't know how to do. Nothing worse than wasting money replacing things incorrectly, then needing to replace them again!

Hey Paul, we still have to adhere to the 90 day rule in CA - A lot of the investors think they can turn them within 30 days. But that is not the case. Great Post...

Flipping is not for the faint of heart and it's easy to get in over your head. I'm living in one of the houses I bought to renovate for profit (I'd like to think the things I've done don't qualify as what most people consider a "flip") because once I had put in the blood sweat and tears I couldn't bear the thought of selling it.

My partner and I lost money on our first flip. We upgraded way too much and took way too long. And I do professional remodels for other people that are always on time and on budget. Go figure. Its much harder when you are doing it for yourself.

I won 2 awards for Excellence In Remodeling (Chrysalis Award for Best Whole House Remodel under $200,000 - Western States and National Best Kitchen Remodel under $40,000) for this project, but we didn't make any money on it.

Flipping can be a great opportunity, but you really have to know what you are doing. You offer some great tips.

I love flipping. I can make more money flipping than doing anything else. You see here in the Detroit area you can buy good quality homes for $20-$30,000 that need just cosmetic updates. I put $20,000 into them fixing up the cosmetics then sell them quickly for $80-90K. I do fix them up right as if I wanted to live there because I know it is that touch that makes them sell. I have done several and make about $30,000 on each one. I agree though you have to buy the right home at the right price--I have seen many others try-thinking it is very easy but they learn the hard way. If the numbers are not there then you have to walk away. How many $50,000 homes would I have to sell at 3% commission to make $30,000? I can just buy one and flip it in a couple months to make that.

I sell real estate to pay for my flips. My flip profit then pays for a free and clear rental home. A few flips= a few good rentals free and clear. A few more years like the last couple and I will have 10 rentals owned free and clear which equals about $8000 per month in income. I won't have to work anymore--but probably still will.

Flipping comes with risk of course...but everything worth anything does!

Paul and All,

Flipping is a business, you better know what you are doing or you will lose big time. If you are good at identifying undervalued properties, understand design trends, do or have someone do professional work, understand and can take risks, have adequate capital, have an RE license, you will make money on 7 out of 10. There are plenty of flips and tear downs in or foreclsoed upon in the TC. A dog with a rhinestone collar is still a dog.

For buyers and their agents, the previous sentence says it all. I am a contractor, flipper, and Realtor. I lost big time on my last 1mil flip. Broke my own rules and bought a custom built house. The comment from Florida Pines is right on about function. Today's buyer shops at Wall Mart, it is all about function and price.

As a person who has bought homes to fix up and sell, I can tell you that most people fail miserably when they try their hand at it. The two keys to making money are to Buy Right & Spend Wisely.

For whatever work one cannot do themselves, find someone who will do the work without charging you the "Yellow Pages" price. There are plenty of hard working people that will do the work for much less than a seasoned person and do a good job. Never pay in advance for repairs and only pay when they are done and you are 100% satisfied.

Take your time. It should never be about how quickly you can get the job done. Take pride in the house you are fixing up. When you take pride in a project it shows. Take lots of before and after photos, not only for the benefit of selling the home but for your own personal portfolio. You never know when that might come in handy.

Make it a family project if possible. I am lucky enough to have family members who excel in plumbing, tile and carpentry and that right there is half the battle if not more. Most of all, have fun and enjoy what you're doing. Believe it or not you are doing something that will benefit the neighborhood around you as you work to improve not only your home but improve the attitudes of those owners around you. It really does make a difference.

You said "I have been in the proceess of getting a home ready to sell the past three weeks. When I bought it I was hoping to have it on the market next week"

In the state of Ohio, one ( home buyer )has to wait until the 92nd day before writing an offer on an acquired home. Unless that seller is a bank or government program like hud.

Not day 90 or 91. Good luck and best wishes.

Good article but I wonder if you are referring more to short sales vs. bank owned when you are talking about response time. I usually here from the banks in 24 to 48 hours on the REO or bank owned foreclosure properties. It's the short sales or pre foreclosures where we see months of time before the banks respond. Just curious. Thanks

I have purchased over 40 homes this year for flipping so I can tell you that there are many pitfalls for the unseasoned investor/flipper AS WELL AS a lot of money to be made. Of course you need to know of the 90 day hold for FHA (which is actually like 120, because you can't execute the contract till the 90th day), however there are loan programs for conventional financing over 10% down and VA loans do not have seasoning. Furthermore, in certain rural areas, buyers can get a USDA loan at up to 102% financing without hold restrictions.

The bottom line is that flipping homes has got to be run like a full time business. We have streamlined our process using the same materials, improvements, crews, etc. to maximize our return on investment. I price our flips to sale in the the first week on the market so we are not as vulnerable to market fluctuations. Also, you have to know that for flip home is going to appeal to buyers that have 10% or more down (ie don't buy in lower-end neighborhoods that appeal to only FHA buyers).

I see a lot of 'casual' flippers who get into flipping for the glamor of it, not knowing how much work, time and market knowledge is involved. Lastly, I just wanted to note that I agree with the person that said 'you make money when you buy, not when you sell'.

My flip website: nuffsaidenterprises.com

As far as working with banks is concerned, I am almost to the point of boycotting bank owned properties. They take up entirely too much time, make demand after demand and take their time to respond. They do not treat us in a professional manner. After finally closing a bank owned property this year I look back and find, I have spent between 400 and 500 hours on a deal I made $1000 on.

As a seasoned "flipper" I would just like to give a small piece of advice to save everyone money and headaches.

If your thinking about flipping find someone that has experience in flipping. A experienced flipper can save you a ton of money, help you choose the right home and save time which will get it on the market faster.

Think of this. Would you want a 100% of nothing or 50% something north of $0. Do 5-6 deals then go out on your own. There are plenty of deals out there. Don't get caught thinking this one deal is the last one ever.

Good Luck

Someone commented here that all lenders are moving toward to 90 day rule. That will hurt flippers, and also hurt short sale investors. Right now we can simply direct buyers towards conventional financing, but if all lenders start following this rule we could have problems.

Hello Active Rainers,

I don't often comment but felt compelled as this is a favorite subject of mine! For the last 20 years or so my contractor husband and I have bought and sold quite a few. Many we wish we had been able to keep. Our favorites where the homes that we had end users in mind prior to beginning. Why? Way less stress when you know you have a ready, willing and ABLE buyer in place. My suggestions; 1. Always buy with a home warranty, inspection, and title insurance. 2. Start with the structural items.3. Keep to budget. 4.Be prepared to carry for 6 months 5. Be the kind of seller that buyers love! This is the best market to find the good deals, but please do your home work!

Carol R. Newman ABR Trademark Properties Charleston, South Carolina

Good advice Paul. So many things in life are harder than they seem. Very few can handle a large task like flipping on their own.

I hope your friend contacts you soon. He will need your expert advice in trying to flip properties in our current lending market.

Many of the banks are putting a 30 to 90 day no-flipping restriction in their deeds when they sell. Trying to avoid the investors from doing double closings.

This is a great thread on the subject of flipping properties. Buyers should be aware that a potential home has been rehabbed. In most cases investors buy houses that are complete dumps, this is the only way to make money in the flipping business. These fellows will only spend money on pretty items.

It is amazing how some buyers can be so impressed by granite countertops and fake wood floors. All one needs to do is open the kitchen cabinet and take a look inside, most investors/remodelers won't have touched the drain and water supply lines and at least one or two will be leaking.

As an agent and licensed home inspector I see these properties all the time. We home inspectors refer to these houses as "pigs with lipstick". Best to keep our buyers away or completely informed.

In CA Wells Fargo has a 1 YEAR flipping rule! Found out the hard way. I've heard others lenders may follow suit.

In my opinion, this is defininitely unreasonable and discriminatory. If any lawyer want to make a quick buck in a class action lawsuit, here is their chance.

I used to flip myself over 20 yrs ago before the term became popular. Now I can spot shortcuts and coverup of major problems easily when I show homes to my buyers.

One case had a severe mold issue through leaking window sills. Flipper painted over it, but he forgot that mold is a living organism and will penetrate the paint eventually, so I spotted it immediately. Reported it to the listing agent and told her that now you are aware of it, she'd have to disclose it to any buyer. She said it's not her job to do so, it's the inspectors. Wrong! CA real estate law states that any know issues have to be disclosed by the agent, whether the seller wants to or not. I told her if she's willing to risk her licence, then don't disclose.

My husband and I actually bought a home in the northeast that was approximately 40 years. We ended up rennovating the entire home. We stayed in the home for 2 1/2 years because of the capital gains tax thing and we put into the home $20,000. When we finally sold it, it sold in 5 days for a full cash offer and we had multiple contracts. We made over $150,000 when we sold it and I think we could have gotten more if we had pushed the envelope. We did most of the repairs and painting except for the electrical, plumbing and carpeting. We took classes at the local home repair and sought a lot of advice from them on the most cost efficient ways to do things; laobr is over the top in the Northeast and we wanted a cost effective solution for those repairs.

I dont think there is anything wrong with someone doing their own repairs PROVIDED THEY ARE DONE CORRECTLY THE FIRST TIME. My advice would be for anyone to let the pros handle it if you are not sure because it may end up costing you more money to have it done right the second time. LOL

I am now a stager and I think that my staging of my home and all the repairs and bringing it up to date is what actually sold the home. So, when I see my clients homes, we always recommend those repairs, color changes, etc. and we provide a list of credential contractors if they need it. House flipping is really no different except most people are doing it in very different time constraints - I strongly urge anyone to use a credentialed contractor and have it put in writing the terms of the contract, cost, payment and the start and finish date. Alot of people forget to do that and 2 months later the job isn't finished costing the seller time and money.

I say there is money to be made - you just have to know your limits and be a perfectionist when it comes to the jobs you take on yourself.

Lisa Bond

www.thestagehand.info

I have been flipping mobilehomes and manufactured homes for over twenty years and have yet to lose one nickel. No, it's not luck. It's just having a good team of tradesmen and studying the demographics of the areas you want to invest in. If I can't flip them I end up with a profitable rental. It's a sleeper market that most investors stick their noses up at which is great for me. Let the investors tie their capital up on expensive homes and bring me manufactured homes all day long.

Excellent points. I too jumped on the flipping band wagon a few years ago. I bought some places, redid them very nicely. Then tried to sell, unfortunately the market in south chicagoland fell apart. I am relying on my back up plan - renting until the market improves. Aside from the nightmare of being a landlord, it is going ok now. Still I wish I could sell - landlording is NO fun!

I have been flipping homes for over 20 years and have learned the hard way that sometimes using a "licensed contractor" does not always guarantee professional work that will pass inspection. My rule of thumb is to have any property I intend to purchase inspected by a Home Inspector and I only purchase homes needing cosmetics such as painting, minor drywall repair, carpet replacement and a thorough major cleaning as most "bank-owed" houses need. I purchase a house and sell it as soon as repairs are complete, even if it is 4 weeks later, but the house must be sold for cash. A good honest flipper should inform any realtors or potential buyers that this is a flip. I think it is only fair so that the buyers do not view a house that may not be able to be financed by their particular type of mortgage. Greed will usually get you into trouble. Everyone understands an investor trying to make a reasonable profit on a flip, however when you try to flip a house for an enormous amount over what you paid, this sends up red flags all over and understandably all interested parties want to know what work you did to the property to justify the steep increase in your asking price. I am a licensed Interior Decorator and as a result am able to complete most of my cosmetics myself. As earlier posts have stated, you should hire a professional to do those repairs which generally require a licensed contractor. I occasionally come across electrical outlets that need to be replaced or toilets that may need replacing, this is when I contract with a contractor. It is better to sell 10 flips for a reasonable smaller profit than to try and make a huge profit on one flip which in today's market may sit on the market for a very long time or may not even sell at all because you have priced it too high. My general market is lower to middle income, mostly single mothers, so I generally try to keep homes priced at an affordable price for these buyers. I also will Rent homes with an Option as I am aware that not everyone can pay cash for a home.

"You can tell what they are by what they do, not what they say"

Nice Post, Paul. 2005-2006 the two homes I flipped...flopped - big time. Clearly, it's difficult enough without having lenders involved that don't understand the difference between value and price (or lenders who limit the amount an investor may profit - what is that all about?)

This is an excellent post. I've been experiencing a lot of flipped properties with my buyers. I have even considered doing flips myself. The comments lead me to believe that I should be well prepared before moving into this market from the investment standpoint.

People need to know what they are getting into. Many of these people have also been listening to Real Estate seminars telling them how to buy with nothing and down and make tons of money.

Hi Paul,

I am not a "Flipper" but a Residential Redeveloper. The first problem I have with Get Rich Flippers is the shoddy workmanship. It gives all of us a bad name. The key to a good rehab is a good Statement of Work (SOW) and working with professional contractors.

I recruit contractors who specialize in the 8 trades I need for every rehab. They know what they are doing and they know what is expected of them by me. The only work I do is to inspect their work at each milestone and write the check to pay them for the accepted work to that point. All of my houses sell at or slightly more than market. This is due to the craftmanship of my contractors and what I put into the house as "Sizzle" features.

If these Get Rich Quick Flippers try to follow what they see on one of these hour long shows, it is no wonder the product is cheap, because they are. They need to invest the time and money to learn it and then take the action to do a high quality rehab. Until they do this, they will continue to have properties that fail to sell and give the rest of us a bad name.

These are great words to hear. You don't know how many times we have "walked away" from a potential staging job when the flipper is just that... inexperienced and in it for the cover up. To me that is unethical. We work with REAL investors who take what they do seriously. They are a team, investor, realtor, lender, and stager. Everyone has something to loose if it is done poorly. One group we work with does not buy homes over 10 years old and many are only 5. They ALWAYS contract out to the best and the houses have passed inspection better that when the Homeowners left. I just wrote a blog on this encouraging investors to use a stager for upgrades and a fine toothed comb. We refer them to our best contractors. I agree... there are a lot if investor/flippers out there who think they can make a fast buck. Good Luck

The 90 day rule is just for the FHA loans and does not effect any other financing. We have bought and resold homes and small commercial properties for over thirty years and it is our business to do so. I hate the Flipper tag and I find that most of the agents that comment on this phase of the business do not know anything about this part of our real estate business.

There are professional agents and brokers that operate this income producing part of their business because it is one of the most rewarding areas that produce more profit than just selling other office listings. The comments by Carol Newmnan and Brandon indicate the type of offices that operate on a professional level and are a good model to copy. Just stay in the area of your expertise and you will do well but leave the so called Flippers alone, we love the profit.

I also decided to learn about flipping the hardway. I bought at what I though was a good price. had the property inspected before I bought - nothing major found. Got into it and found a whole bunch wrong and ended up spending twice as much. I did follow the golden rule - We live in a Hurricane prone area so besides new wiring, new plumbing, new walls, new floor I added reinforcement (House is on 10' pilings). Took me 6 months rather then the 3 months, then couldn't sell it for what I had into it. It is now rental and a tax write off - and you know what happens to rentals. - Flipping isn't as easy as it appears on TV

I forgot to add - Flipping wasn't easy, I have yet to come out on it, but it sure was fun taking a piece of trash and turning it into a nice home - but financially - be very very careful.

Great content - THe "golden rule" is defintely applicable when flipping. Any time that I work on a project, it's complete to my personal living standards - If I couldn't imagine living there, I don't feel that the market would support the values that I'm asking for as I sell. Over the past 3-5 years through our "boom" cycle here in Calgary, I've seen enough "developers" run through projects haphazardly and their product is by far substandard. Quick patches, mould problems for tenants and especially in the case of 6-plex to condo developments, the end owners are left holding the bag in terms of further upgrades and expenses. Far too often, 'quality' goes to the wayside as greed for profit become prime motivators.

Thankfully, however, we've also seen the 'invisible hand' of the market regulate some of these smash-and-grabbers; maybe not on their last project, but their current and future ones for sure.

I'm currently handling a foreclosure in our private mortgage fund and some 'flippers' had ripped out the interior of the bungalow. Relying on top-quality trades like electricians, plumbing and finishing carpenters is VITAL to making sure that the property is safe, top quality and of solid value to the end user.

Keep up the flag-waving - too many 'seminar junkies' out there that need to be reined in!

To your growth and success,

James C. Tworek

Also under the FHA AND VA conditions - the seller must own the home for 90 days and a contract cannot even be written until the 91st day! I found this out from my legal counsel as my investor who flips homes (He happens to be a licensed general contractor and he does GOOD work) Just wanted to let other agents know that it is the 91st day to write an FHA or VA Contract. Have a geat day everyone!

Great to see all the answers from people with different experiences. I myself have never seen a flipper actually make money. Houses are usually not sold at a low enough price to make it financially worth the risk. My honest opinion is that the "flipping" industry is something that has been created by the entertainment industry for television.

How about the new breed of flippers - the Short Sale Flipper? In my opionion, SS flipping is a greedy and seedy business because these "investors" have no risk in the deal. Done Deal Solutions is big in the Arizona and Colorado market, and have legally developed a model to overcome the FHA 90 day model. But what happens if they can't get their return? The SS dies, and the seller gets a foreclosure.

What bothers me is that these "investors" are making money on other people's losses, and it's "in your face"...vs the foreclosure buyer, who buys, and either improves the property, or attempts to do a quick flip...

I have worked with investors who want to flip and the first they I tell them is fix so that you would live in it. Well, some of their living standards may not have been as high as I hoped... :)

When I am mentoring a new investor i will take them to look at some recent rehabed properties. this helps them with the work they are going to have done, and they keep their price resonable.

I know exactly what you mean. It's sad really, but some people don't think things through, and some are just too proud to ask for someone else's opinion. I've seen it first hand. I can't tell you how many times I scuff my heel here in the office, and ask my co-worker - wife, "Why don't people listen? It's not like I do this every day for a living you know!" You can lead a horse to water, but you can't make'm drink.

There is an old saying "you get what you pay for". Wouldn't it be nice if it really were that simple. Pay a little more, get a little more . . . But as the rehabbers can attest, paying more for a house or a contractor just means that you paid a little more, not that you get a little more. That is where experience comes in. Many long time rehabbers (flippers?) have done very well in this business while the newbies tend to flounder around, at least for a while. If your first deal works, count your blessings, as most of the time all the newbies get is experience.

Akron, Ohio

Oh yes...I remember one house had been on the market for a year without a bite. The flippers had torn out walls and made a lovely master bedroom...but the way it was done there was no place for a king size bed. FAIL Then they had installed a top of the line steam shower in the basement...the master bedroom was 2 floors away. And, the master had a very simple bathroom...nice, but nothing like the one in the basement. Doorknobs didn't match the hinges. The cabinet hardware wasn't plum and level. Lots of little things added up to a dog.

Little things matter, and if you don't know what you're doing find someone who does.

I agree that the majority of 'flippers' have no idea what they are doing. However, the first part is to buy the property correctly and the second part is to hire a professional team to complete the work properly. Cheap fix-ups can be seen a mile away....

Good money can be made with buying, fixing and selling...yet, it all depends on the surrounding market. It pays to do your homework!! There is risk involved....but it is risk which needs to be carefully weighed and reviewed. Even with falling real estate prices, you can still lose if you think you can turn a buck without experience. Leave it to the professional investors and renovators...

I've had extensive waits on Short Sales, but not bank-owned homes. Yesterday I showed a lovely 5 bedroom home in Walnut Creek that is priced at $769,000. The upgrades were great.

Flipping is not for the faint of heart in this market

Great comments. Alex Lengemann do you wait the 90 days and then sell your flips or do you get conventional financing for your buyers to purchase your flips?

I really like your concept of selling property as an agent to buy your flips. Then Rehab and sell the flips to buy rentals all cash. Makes alot of sense.

How many homes can you flip, before the IRS see's you as an investor? Is it 10? I wonder what the new tax codes will bring next year?

Good info, thanks for sharing...... So often people want to do things their way or don't want to seek the assistance of the experts and wind up spending too much or losing more money. We have to accept the fact that some people don't get it and just work with the ones that are willing to learn or willing to seek the service of the experts. We have to re-educate some consumers and remind them that the days of quick flips and easy money are gone. Let's get back to the basics and do the right thing when dealing in real estate. When we do good and have good intentions it always comes back to us ten fold.

Good post. Honestly when I saw the title I was expecting to see something about illegality. I'm glad I didn't. =)

I agree with you on new investors. All they see are dollar signs and think it's an easy process. Especially in challenging markets, it's the professionals with experience that will create good investments.

Jared

I love home warrantys. A home warranty is a great "insurance" policy if the flipper is a "do it yourself" type of investor. It gives the buyer a sense of security that if anything goes wrong, it won't cost them a lot. If you are a newbie, then working side by side with an experienced contract may be the way to go on the first few you do.

many of my short sales are from "rehabbers" who watch too much TV and thought it would be easy to flip a house. You are right, I walk in with my crew and we have to demo their "rehab" and start over because it's so poorly done! We call it "Yakski" built.

Flipper Beware: Flipping in its purest sence of the word is going to FLOP! Unless you intend to make and can document significant repairs to the property that justify a short term profit, Flipping will flop you face down in the mud.

Here's the ruling and it applies to all FHA/HUD backed loans.

http://www.hud.gov/news/release.cfm?content=pr03-055.cfm

Do not say you were not warned or did not know. Flipping is really a dirty word

Have been rehabbing houses now for two yeras and learned much. As said the first couple are learning endeavors and net little, but enough to continue. To get around seasoning you can employ private money mortgages. You pay a few points more but sell quickly and someone who would not normally be in a house gets the loan. This works very well with qualified buyers who don't want to miss the deal because of the seasoning issues. 12 to 18 months later when seasoning guidelines are met and credit issues corrected you refinance for the best mortgage rate available. Works for me-

I totally agree with you there. Flipping is really bad for regular market sales too. In addition, flippers and investors rarely get the input of a real estate agent before they make "changes and updates" to a property to see if they are even necessary or correct. It's another case of the real estate do-it-yourselfer that needs to learn a lesson!

Buyers beware of Flippers who are only putting lipstick on a pig... ;)

Sounds like you just described my clips flip... It didn't sell with me and he's trying another Realtor.

I have already read some posts that discuss the 90 day moratorium for FHA repos which means you must have possession of the property 90 days BEFORE your buyer can obtain FHA secured financing. BE SURE that your FHA appraisal in after the 90 day period. Remember that FHA appraisals are good for 6 months so if you pull the trigger too soon you may be setting on it for SIX MORE MONTHS!

Also another note on flipping worth mentioning is that FanniMae has reinstated its 6 MONTH anti flip policy that prevents investors from flipping a property for more that 120% of the purchase price for 120 days after possession. THIS IS RECORDED WITHIN THE DEED.

Flipping is still very lucrative but one must watch for pitfalls such as the ones listed above and the legal ones as well. HAPPY SELLING!

I have done many a "Current Owner" search in which the client wanted to know how many times the property had been transferred within the past two years. I'm told that this is to determine whether or not a property is being "flipped" because title insurance underwriters are leery of being involved in "short sale flips".

Good post, it is both timely and relevant.

Great information- thanks for sharing! I have seen some bad remodels. They need to consult a REALTOR and see what the norm is in that neighborhood! And what you said about bank foreclosures is true too! People think they are great bargains but they may have to wait for months, like you say, only to be heartbroken. REO's are only for the tough at heart most of the time.

I totally agree that home rennovation is not for the faint hearted (did I mention we actually lived in the house while we were doing the rennovations? If you can do that and still have your marriage stay in tact . . .)even though we did make a large profit, this isn't to say that we didn't have our share of problems. For one thing, the home inspector we hired missed the fact that the well pressure tank was about to go and was rusting (I had purchased a home warranty through American Home Shield to cover anything like this - that had saved us a total of $6,000+ because we had to replace the well pump, too. The labor was extremely expensive)

But, we did know our limits and being a virgo, I am a perfectionist about everything - but what we did learn is that people want turn key, and if done properly - it can be lucrative- I do agree though that there are people who should not pick up a paint brush or attempt to do home improvements - the previous owner attempted to do all the repairs in his home himself (as we discovered while the plumbers were reinstalling a drain pan for the master shower and the wall we had just painted had an opening where the pipes were - when I went to take a shower water starting spewing out of the wall! (Not to mention what spewed out of my mouth!) The previous owner also did his own plumbing, too! LOL

But, all in all it was a learning experience and I think there are talented people and there are not so talented people who do this - BUYER BEWARE!

Great Talking Points!

Might I also mention the permits in some counties that are required for some upgrades that never get pulled and cause an issue for the home seller down the road. Good to have this knowledge!

Thank you for post, Paul. "The Golden Rule" is so important in business. I'd like to point out some misconceptions in the comments posted in hopes that the truth will help someone here.

Some people have the impression that flipping requires the buyer to take title before recasting the property. I developed The "Control and RollTM" Auction Wholesaling Method that members are using at Investors United School of Real Estate with much success. Rather than BUYING and taking title, we CONTROL the property with a "Skinny Contract" - a one to two page agreement that includes such clauses as:

Right to Market (to advertisie the property prior to closing.)
Right of Entry
Contingent Upon Successful 3rd Party Assignment

Because we control properties to wholesale/flip rather than buying, we are able to 1) minimize our risk and 2) avoid title seasoning issues. And in three to four weeks - provided the property is priced correctly - the property is sold by public reserve auction.

I also wish to point out that flip transactions do not necessitate improvements to the subject property. However, it is important to remember The Golden Rule as Paul pointed out. We have a saying at Investors United, "Buy Low, Sell Low, Do it Often."

All said, flipping can be an excellent, low-risk way of getting into the real estate investment business or generating cash reserves. Flipping never went out of style, it was and is still a viable strategy where there is cash flow or equity.

Thanks!

I whole-heartedly agree that knowledge is key.

These are all great posts. Being on the lending side of the desk, I never fail to be amazed at the naivete of many home flippers. This is not a great game for newbies or the faint of heart. All the comments about financing concerns are true.

FHA's 90 day ownership requirement is becoming the de facto standard for lenders. Just a hint, the contract may NOT be dated during the 90 day anti-flipping period, even if the closing takes place after the 90 days has transpired.

Many conventional lenders have stiffer rules than that. As noted, conventional underwriters are notoriously tough on these homes, including asking for proof of the actual costs of the repairs and upgrades. If you think they aren't adding the purchase price plus the costs of improvements in their heads, think again. They may not ultimately make their decision about the property on that number, but they ARE thinking about it. If they find any other issue in the file, this may tip the scales.

While you are talking to contractors, try talking to your friendly neighborhood mortgage broker. Otherwise, you run the risk of "Now that I caught it, how do I clean it and cook it?".

Morning, Paul!

You make some very good points. Many homes do need "repair to the repair."

My son is a remodeling contractor in the Seattle area - and he quite often can't believe the problems he finds. Most are the result of "quick fixes" and cost-cutting, although some are obviously caused by inexperienced homeowners trying to be "do it yourselfers."

One of the most recent was a house that needed repairs to a spongey bathroom floor. When he pulled up the top layer he found completely rotted sub-floor beneath, and it extended far beyond the bathroom. Apparently a "flipper" had thought it less expensive to just lay clean plywood over the rot.

He's learned not to give a firm bid on a project until he sees what's behind those walls or under those floors!

Inexperienced buyers definitely need to work with experienced agents who can spot the telltale signs of shoddy workmanship. A small problem that appears inexpensive to fix could be a red flag warning of more expensive problems hidden from sight.

Good luck getting your own flip finished and on the market!

marte signature

www.copybymarte.com

Flipping real estate is still alive and well, it is in Baltimore Maryland and probably in every county in the US. I have been re-cycling, assigning or flipping real estate since 1980 and continue to do so and train others how to use my model Control & Roll as a way to partner with me and to increase my reach of wholesale real estate.

I sell by public auction, (all cash, not contingent on anything and in as is condition) Because of negotiating skills and creative marketing I have been able to find sellers willing to sell at a true discount.

Instead of buying, I CONTROL properties subject to an assignment within 3 weeks (oh, I also own the real estate auction company).

Last week we split $60,000 net profits by using this method. Recently we collected $30,000 from a property we did not own and a few years ago we did one in 11 days for over $500,000. Last year we flipped a Moose Lodge and 3 water front properties fo $250,000 profit.

At 67 years old, I've discovered a long time ago that I did not like to go to settlement or own real estate in order to make a profit. I did not want to be a slave to FHA guidelines, agents, apprasiers or underwriters to profit from real estate; that is why the Control & Roll Auction Wholesale system works so well for me, but you need to negotiate the right offer.

At last count, we did 900 auction transactions in 36 months. Not all were winners, but many of them make some money.

An investor who is not making daily offers on real estate is standing still and working at a loss.

Some of the systems I use; effective contract clauses, disclosures, hybrid offers, and profit sharing.

If you are thinking conventional...... this system will not work........ you need to sell as is, where is with out contingencies.

Wishing all good luck flipping real estate .... do it right, be honest and make full diisclosures.

Charles

Another possible pitfall. Will the house appraiser. No longer can investors use their own appraiser. The banks decide that for you. So no longer will there be huge profits. Investors need to be realistic about what they can get for their newly "renovated" home, term used loosely here.

So I agree Flippers, it is a whole new world out there......BE CAREFUL

Please note that some lenders will look at when the deed was recorded for the 90 day requirement. So your investor clients should take great care to make sure the title company records that deed pronto. I have heard horror stories of investors who followed all of the rules and jump through all of the hoops only to have the financing fall through because the title company did not record the deed until a couple of months after they originally purchased the property.

I love to renovate properties personally and I am actively looking for a new project in the DC metro area.

Great topic and great comments. I learned the hard way that with FHA loans (your Buyer will probably use that more often than not these days) - the contract cannot be written any sooner than 90 days AFTER you settle on the purchase of the house. I know - I have done a dozen or so flips in the MD area, and altho you want to turn it over quickly, you cannot if your Buyer uses a FHA loan!

Great topic and what rich comments. While I couldn't sleep at night with a flip in my family, I think it'd be fun to work with an investor with good intentions/ethics. I wasn't aware of the "seasoning" required by FHA...Interesting.

As in life, timing is everything in flipping. I am surprised that flipping is flourishing in this market. While our local market is definitely rebounding, so many properties are selling at a discount relative to cost that I would be hesitant to attempt a flip. But it's all local and glad to hear that this is viable in other areas.

We see the attempted "flips" in our market more and more frequently--coming back on the market as short sales or REOs. As you said, you can always tell... I've been showing a lot of entry level properties lately--in our market, under $350K and it's usually the same story. Granite counters, stainless appliances, unfinished bath remodels, maybe some type of Pergo flooring... sometimes the remodels have been finished, but most of the time, they apparently got so far and then ran out of money... or patience! Flipping is challenging and definitely not for the faint of heart!

Flippers to be aware of FHA 90-Flip rule.

This will limit their prospective buyers to only CASH, VA, CONV for the first 90 days.

Thanks again to everyone who took the time to post a reply. I have learned much more than I expected and am grateful for each of you takin the time to post a reply.

My four month old baby granddaughter suddenly got very ill this afternoon and is at the hospital with her mother and my wife. Please pray for Caroline to get well quickly. Thanks, Paul

I work with quite a few investor clients and I will be sure and remind them about the "golden rule". Lots of good info here, thank you. I was not aware of the FHA 90 day rule...this is good to know.

Paul

You know what they say, you make money on the buy not the sale. I developed a spreadsheet that tells you exaxtly what you need to buy a property for in order to turn a profit. Great post.

Paul,

Thanks for the Great tips!!

Flipping is not a get rich scheme! It takes an investment and a wise investor and a cooperating market to make it profitable!

Didnt read every post so Im sorry if this is redundant but one must also watch out for existing and new state laws regarding 'flipping' of properties. How its aquired may be important. You may be sued by the old owner. Having a r.e. license may be a big handicap.

I work with smart investors who see "flipping" as a business and are not afraid to call in the experts BEFORE making expensive misstakes. A good team will include a knowledgeble and hands on, creative agent, good craftspeople, inspector, and someone like me, a stager who understands the market and has project management experiece.

Nothing can overcome a bad buy. You have to understand what you are REALLY getting into and it takes more than just YOU to see that. If done intelligently, buying and reselling a house quickly can be done here in the Upstate of SC and for a profit. But just like football or soccer or basketball, it takes a good team effort.

You don't have to be Lucky or HOPE you come out ok, with proper guidance in the beginning, you should be able to predict your outcome. And of course, you have to LISTEN to your teamates. Even when they say, "walk away".

Paul,

First let me say that I will keep your grandbaby and your entire family in my thoughts! I hope she will recover quickly and return home ,where she belongs.

Secondly, thank you for stirring the pot with this subject. I am currently looking for a couple "flips" in my area, and will use the comments and advice to make the right buying decisions. My husband and I have done several in the past..all with a small profit. I know we have done a good job when I am sad to see it sell, and have contemplated moving into it myself!

I am a flipper and have been in the business the past 3 1/2 years or so. If you put out a superior product, you will do well. If you follow the formula, have a set timeline, know the cost to fix up the property, holding costs, and your exit strategy (strategies), its a fantastic business.

Yes, there are those that get into flipping that not only have no business sense but they try to do all the work themselves and put out an inferior product. I've learned along the way what I'm good at, what my partner is good at, and we have contractors/electricians/plumbers/carpet guys/drywall guys, etc... for the rest. As a flipper, you learn to play by the percentages. I don't put in one offer and expect to get that property. I'm often putting in a dozen offers within a week. Some may call it low-balling but I have a formula, pick out properties based on several criteria, and so far it has worked out very well. Yes, there is the FHA 90 day rule but there is a workaround to that by incorporating a quick lease option for the potential buyer. Collect a good amount of option consideration and on the 91st day a contract is written. No brainer.

When it comes to appraisals we can back up our work by making sure the appraiser gets a list of work that has been completed as well as copies of receipts or a spreadsheet detailing the cost breakdown. Not a big deal and never had a problem with it. Usually the one's that say it can't be done are the one's who haven't attempted to do it themselves. I've corrected many an attorney and realtor along the way because they say that certain things can't be done. Just because you haven't flipped a property in one day, don't say it can't be done (I bought with cash for $50K and sold it for $62K cash on the same day).

Brace yourself, I am about to reveal the closely guarded, absolutely fail safe way to make a "small fortune" flipping houses. START WITH A LARGE FORTUNE.

Been a flipper in my previous life, it is not for the faint of heart.

Rule one, before you buy cost everything out if you were to hire an experienced journeyman for every task. Make sure that your project plan is complete and stick to the plan, you will always have unknown unknowns you will need to deal with so add 20% to what ever your estimate for time and costs are.

Add in your expected profit, I don't take on a project unless I can net $25k and make sure you have boths sides of your transactional costs.

Everything you choose to tackle yourself you will make money on because you are not earning journyman wages, but remember time is money if a journeyman would have taken two days for a job that took you a week to complete you lost money.

With your hedges for cost and with the sweat equity you put into the place you will make more than projected 75% of the time.

With this model you might have to work up 20 houses to get one tat works for your model but I would rather spend my time working up houses than bitting my nails and busting my back to scrape out a $5k profit.

I like investing much more than flipping! It is all about that cash flow!

Good luck!

SEP

Very true Paul. Flippers need to do their homework...or else they may pay dearly.

Thanks for your insight. I appreciate your thoughts on applying the Golden Rule. I'm currently working with an investor who loves buying Bank Owned properties. He will rehab them and then rent for 3 yrs before selling. After several conversations about doing the right thing from inception to completion, I think renters and future purchasers will have a good quality home.

i do have a few comments:

1 flipping does not have to include rehabbing;

2 REO are OWNED by the bank;

3 shortsale is NOT a bank sale. it is when the owner is asking a favor from the bank to let go of the lien the bank holds on the property for less than what the owner owes, so that the owner can sell that property.

4 for those who despise shortsale investors under the premises that those investors are praying upon owners losses, consider that the owner has already lost everything and is NOT entitle to receive from the sale ANY money. this would be bank fraud. the bank loses even more money by going through foreclosure. the bank is NOT entitle to look for a buyer until it takes legal title to the property. this happens at the auction. so if the bank can't sell the house it doesn't have yet, the owner can't get any money from the sale, the property has lost its value, then why so much fuss over some investor who attempt to save the credit of the homeowner from having a foreclosure on their record, save the bank from the hassle of going through that foreclosure, create an opportunity for a new buyer to get a house for a decent price, prevent that house from being a worse statistics and decaying till the bank puts itself together to figure out what to do with that property, and still get pay a crazy salary for their action? why be jealous of their income if the bank is satisfied with what they get, the owner with saving their deteriorating credit and being involved in an excruciatingly long process of insecurity and fear, and that the new buyer has some cushion if the market goes further down? sell the house and be happy a problem was solved!

5 those wannabe handymen suck!

6 if you flip with of without rehabbing, never forget to include the rehab costs with everything you can imagine that may go wrong, then your closings, your upkeep and maintenance until you sell, your profit, then as well a good discount to the end buyer so as to give them that cushion i mentioned.

7 don't use zillow for value...lol. nor should you consider MLS alone.

8 be a problem solver but not a slave. if you are the agent don't be a gofor, take charge, understand the deal, make it work. use tactics and techniques of true salesmanship as needed, play the field make everyone conscious of the state of affairs, don't be afraid of slamming doors on the face of those who are unreasonable, they waste your energy and are after self pity. be frank and open. study investing and understand the infinite flexiblity of creative buying so as to bring to the table incredible solutions no one had thought about. don't be stuck with one closing agent/title company/lawyer. don't be stuck with the wrong mortgage broker. don't complain and point fingers

9 boycott the government, fannymay, and the banks!

A few years ago, 9 out of 10 flipper homes were reported to be fully renovated by simply repainting and replacing the floor coverings. Concealed areas such as attic and crawl spaces were a mess.

Fortunately, I see very few flippers today.

in the flipping business we call that a haircut and a shave.

SEP

Paul, great advice learned the hard way. HGTV makes it seem soooo easy. It can be financially ruining if you don't know what you are doing.

SEP

A hot topic, Paul. I hope your deal works out for you. Now that things are slowing down a little bit, maybe we'll have time for that cup of coffee we talked about so long ago!

SEP

I like 126's comments, so true, flipping is hard to make the numbers work, usually the investor needs some sort of inside source to make the numbers work and be worth thier time

SEP

The agent has to have a good back ground in property values to tell his buyer when to run. I encourage buyers to get second opinions from their contractor. Thanks for the article.

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