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Flipping for BIG Profit ??? Really ???

I love the reality shows. Buy low, sell high, make a bundle. $50,000 profit. Really?

You pay $100,000 and have a mortgage. There are points and closing cost. There are monthly carry costs on the PITI, insurance, gas, electric and water. There are dumpster fees. There are permit fees (maybe). There are material costs. There are budget overruns. There are labor costs. There are re-sale commissions. There are seller concessions. There are transfer taxes. There are title insurance costs. There is all of your time.

You didn't really make $50,000 !!!!!!

I don't know how many re-hab flips I have done. It is a lot. Not once have I gotten the work done in a week, property marketed, open house held and property under contract on the first day. Never have my open houses brought in 100's of people.

Ugghhhh.

Ladies and gentlemen, flipping is not that easy. If it is, I must be doing it wrong. Like anything it is hard work with a little luck thrown in. It is ALL MATH and calculations. Detailed spreadsheets and budgeting. It can be done.

Please Please Please do not believe the TV.

Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Ohio Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.

United Country Ohio Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17

Posted by Rich Kruse on 12/11/2006 08:29 AM

Comments (10)

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Originally posted at: Asset Management & Recovery: Flipping for BIG Profit ??? Really ???

10 Comments on Flipping for BIG Profit ??? Really ???

DEC

2006

When I watch these shows, I tell my wife the same things you pointed out. The only guy I really like is the guy from South Carolina who has his rehab deadline(usually at 10 days, not the 6-8 weeks).

The individual part -time investors fall prey to time, overhead and carry expenses and also lack of contractor knowledge. Sometimes I laugh because I see greed in their eyes, over-confidence in their voice, lack of business knowledge and amazement in their faces when their project isn't selling.

It kind of reminds me of kids, fresh out of college, getting a job and thinking they will be vice-president within the year.

No doubt! My dad does this in an area of the country where you wouldn't believe he makes a substantial profit. When you do it on a regular basis you need to have all of your "team" (contractors, mtg (if necessary), accountant, 1031 intermediary, liquid funds, etc) lined up and drawn in a simple business plan. You need to be prepared to hold longer than planned and have more money than planned.

I love how "flip this house" has the agent walk in, compliment them on all the work, say "here are the comps" and then "here is how much your house is worth".

Blah, let's talk about the hard reality of what is the average days on market, what concessions you need to be prepared to give (which subtracts from the bottom line) , etc etc etc

Hard reality isn't so nice, simple, easy and copasthetic.

Nice post Rich! Flipping for dollars is not easy. It's a lot of work and cost and it is imperative to know your market. Don't purchase property in Dayton if you are living in and thinking of the market in San Francisco. It ain't the same patch of land! We regularly get calls from folks who got in over their heads on a flip, or didnt' know the market, and now they are facing foreclosure. And it's sad.

Peter- I agree. about those shows the few times I've seen those shows, the dude from SC is fun- because he knows what he is doing. He is a pro at work.

Have you noticed, the homeowners in order to compensate for their mistakes, compound it by going for sale by owner and as the weeks roll along, they lower the price and then finally realize they need to hire an agent.

Attn. Wannabes: This is a business, conduct it as one

Here we go again with more on: The Dumbing Down of the Population!

If it's too good to be true.................... Then most people will fall for it.

What a pity.

i leatrned to wee out the carlton sheets flippers from my business.

Rich, It's the new math, man. Closing costs, carrying costs are all part of the PROFIT. I need to try this strategy:)

DEC

2006

I noticed the same thing the first time I watched one of those shows. No holding costs, commissions, taxes, etc. It makes those people look like they are profitable. We all know better.... ;)

JAN

2007

well, the trademark equities and the Montolongo family usually get their houses by way of the three D's....Divorce, Disease, or Death. They will get homes VERY cheap. They have the cash to purchase right away. You can tell in Texas that not all of the Contractor's men are "legal" so the remodel costs are minimal, plus they work like dogs. A lot of these companies have relationships with several churches and other places that have hardship people just waiting on their "Dream house". The Montolongos also do the mortgages, so they can find almost anyone off the street to "own your own home".

There's also the lease purchase exit strategy that could be used in these situations too. You see the differences in homes that the Montolongos purchase compared to Trademark in SC and the ATL flippers. The name of the game is find a sucker to accept their low low low offer. They purchase low enough, hard money lenders will carry all of their costs pretty much....then they have to resale it....which can be easy during hot streaks.

JAN

2007

I wish more people would spend the time and energy to learn what all is involved before spending money on these different "Proven strategies" they see advertised. I get calls all the time from people who see my REO properties advertised and want to know just how much it'll be worth all fixed-up. They'll ask, "Can I flip it?" Someother Realtors are part of the problem, too. I had one under contract, the buyer talked to a Realtor friend who told her what a great deal she was getting, and told her that with minimal work, he could sell it fast at $20k more. said he wished he had seen it before she did. Okay, so why, when her financing fell apart, didn't he jump on it? Because he was lying to her, telling her what she wanted to hear. Now she is actively seeking financing just so she can jump on these deals, rehab 'em, and make a fortune. I wish her well, but I ain't holding my breath!

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