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Flipper Having a Tough Time

Flipper Having a Tough Time
by Kaushik Sirkar, Chandler REALTOR®
Chandler AZ Real Estate

For quite a few years folks have been making a good amount of money (in many cases their entire living) by flipping houses. What exactly is flipping? Well, 'traditionally' I would say that flipping entailed purchasing a home that needed a little bit of work. New paint, new carpet and upgraded landscaping - put the home back on the market and make a nice little profit. During a good part of this decade through 2005, flipping often meant purchasing a home and relisting shortly thereafter for a quick sale and profit - all driven by rapid appreciation as opposed 'sweat' equity.

Flipping homes for profit has become a nationwide phenomena. Flip This House and Flip That House are a couple of examples. Alas, with the widespread slowdown in the Real Estate market in numerous locales, flipping homes has become much more difficult. Sure, the buy and re-sell shortly crowd is out of luck. The markets just aren't appreciating so buying a home and selling it for 50k more in 3 months just ain't happening.

What about the folks who put in 'sweat' equity? People have been doing this for YEARS and YEARS. Buy the house with the good bones and fix everything else up to match. Put in your own money, your own time and plenty of your own sweat to fix up the place and hopefully profit a little bit. Well, in a market where very little is selling - a 'sweat flipper' can run into hard times. Take this gentleman for example.

This guy has been flipping houses for 30 years!! I would think he knows about flipping houses. He didn't just start buying in 03' and let appreciation make the money for him. It appears he purchases and puts in a decent amount of effort into these homes. Well - his latest project has been on the market for 10 months! His short term solution appears to be to rent it out - a path numerous want-to-be sellers around the country are following.....

Thanks for Reading :)

Kaushik Sirkar, Chandler Realtor
http://www.homesphx.com

Posted by Kaushik Sirkar on 02/14/2007 07:49 AM

Comments (37)

flipping homes, real estate slowdown, real estate boom

37 Comments on Flipper Having a Tough Time

FEB

2007

Kaushik,

A couple of things I have read recently make it appear that many of these "flippers" cannot even collect enough rent to cover their debt service, let alone their maintenance and upkeep. Generally these were the "get rich quick" folks who entered the market way too late.

If you want to see an extreme example of a flipper gone bad, look at

http://IAmFacingForeclosure.com

Kaushik, as always, your post are well thought out. I like your point about the difference in flipping due to rapid appreciation and sweat equity. We saw a lot of this in our market (FL) as well. Now lots of people are stuck and trying to sell or rent. The hurricanes and their damage didn't help.. people got hurt.

as Fred says, the rent dont even cover the mortgage, due to doubliing insurance costs.

see you around K.

In real estate, as in life, there are no guarantees that you can always make money.

A great guy who I consider one of the most savvy real estate investors around is selling a house for $4,000 less than he has in it and is happy to do so. "I made a mistake on this one." he says and is cutting his losses to move on.

Sound advice.

Good post. I was lucky enough to be in the Washington, DC market when it exploded and I did quite well. We started out buying rehabs for $70,000 putting about $30,000 in to fix them and then selling them for $275,000. This went on for several years. As time went on, more people got in and prices to by rehabs went way up and this was before Flip this House and all the other TV shows that make it look so easy. Flipping is not easy and it is very, very risky. I have seen many people go down in robust markets. The people have see be successful in tight markets have the following skills: Past building experience or experienced in the trades, already have their "team" of people put together i.e. carpenters, plumbers, electricians, painters, real estate agent, inspectors, mortgage people. People who know the area and the market and have ample funds to get in and finish the project and get out, and people who fall in "love" with DEAL, not the HOME or doing their own thing.

Location is everything (people do better in markets where there is more demand than supply), but Timing is KING.

Working with flippers in the midwest is still going strong. Most flippers here are buying at 65% of value, spending around 10-12% on upgrades and selling near 100% value. I think the secret in our current market is buying right, being selective on updates and selling a little below market value.

Frank J. Helderle

http://www.realestatetrio.com

Kaushik-

Thanks for the post. I am a BIG fan of the Flip House television programs and I enjoy reading whatever I can about those who flip

As with everything there are some demographic and geographic truisms. I read that story a couple of weeks ago and have had one of my staff members contact Mr. Corey for clarification. His big mistake was not using other people's money. I, too, have been a flipper practically my whole life. In fact, my first job starting at age 13 was to help clean up houses behind my dad which he had purchased for flipping. It doesn't matter how long you've been doing it ... it matters about each individual deal. Mr. Corey didn't get stung by an unscrupulous seller, lender or agent ... he got caught in a bad investment. Location, location, timing. His short term solution is THE solution and he should have already had that as a contingency. I can tell you after 2500 deals that occasionally you get bitten. By the way, I have been a "Flip This House" sponsor on and off for a couple of years and the best stories about prospects calling in come from those calls! It's the non-legitimate "guru" that is harming the flipping business with their unrealistic sales pitches and incorrect teachings. No wonder people think I'm too conservative ... I'm HONEST!

PArt of the problem with flippers are those TV shows. Finidng a house to "Fix-up" and turn for a healthy profit is more than just finidng and repairing it. It's no different thatn seller your own home. Know your market, know the sales area. Price it fairly or you'll end up with an alligator by its tail and alligators don't like having thier tails held.

I've only been an agent for 4 years (pretty short period of time in this business) and flipping has been something that has been of interest to me for about 3 of those years. The flipping business is still rather healthy in my area and I have partners interested in jumping into the fire if you will, but we have no clue how to begin. The concept of "using other peoples money" is a mystery to me. I see these so called "gurus" on TV and read about them all the time, but they make it sound so simple. I've been around long enough to know if it sounds too good to be true, it probably is. Can anyone clarify just how to "use other peoples money" and offer any advise on getting started in the flipping business?

My market, Poinciana Fl, is satiated with "flips that flopped". There are hundreds of them on the market and probably just as many getting ready to go into foreclosure. All were new construction purchases bought with the intent of placing them on the market and selling them right away. If they didn't close until mid 2005 they are now stuck. And values have decreases 15% to 20% already and are steadily declining. Most over paid to begin with and put very little money down. Flippers are NOT investors, they are speculators. Unfortunately, they watched too much late night TV and now they are screwed, owning properties they can't sell, rent of afford.

Amazingly, I still get calls from folks wanting to buy a house and flip it. A little late to be trying to do that, unless, you buy right and increase value by sweat equity. So many people just don't get it. Their desire for a quick easy buck ends up costing them their credit and sometimes their own home.

Fred - Lots of these flippers just got into it without really knowing what could happen. All these TV shows made them sound like they are gravy!

Nick - I really do think that there is a big difference between the sweat equity flippers and the 'count on appreciation' flippers. The latters are nothing more than speculators....

Jim - Even the best make mistakes sometimes!

Grant - Great comment about flipping and some of the keys to look at. The market is important....and if everyone is doing it, it becomes really hard to make a buck!

Frank - Buying right is definitely a huge key!

Couldn't have said it better myself, Grant, --"Flipping is not easy and it is very, very risky."

That link above http://iamfacingforeclosure.com/

Tells the story of a guy, Casey, who listened to too many infomercials and did 6 fraudulent loans to obtain 6 "flips"...and got foreclosed on all of them.

Still doesn't think he did anything wrong?? Unbelievable!

Rob K. Blake
The Mortgage Insider

Just as a follow up, people who are full time in the buy and rehab business will almost all tell you they have to be prepared to lose on a few houses and they make contingencies in their business plan for some losses. The folks who get hit the hardest are the first timers or those that don't really have the back up financing to weather some bad buys.

As far as Casey Serin and his blog, I can describe that best as sitting watching two trains 50 feet apart about to collide head on when suddenly a jetliner swoops down in between them. That

John - Its certainly fun watching those shows. But sometimes there can be quite the difference between reality and TV!

Ken - Agree on timing! As with the gentleman in the article, he was not a 'speculator' but bad timing has put him in a bind.

Michael - I like the alligator analogy!

Jerry - At a fundamental level, most real estate transactions involve other people's money (aka mortgages!). The late night TV gurus.....thats another story altogether. Don't know much about their techniques...they supposedly work for a few, but not the masses.

Bryant - Florida and Arizona were 2 of the hotspots for flipping and want-to-be-flippers .... probably the highest rate after California.

Yes, flipping has become more popular because of thecable tv shows, but I have to wonder how long ago many of those shows were taped? The prices they say to have received certainly don't sound current.

Joan

There is a lot of people out there that get caught up in the hype of flipping houses. They by these tapes, go to these one day courses, and think that they are going to make millions over night. The only person right now making millions over night on flipping houses are the people who talked other people into buying their tapes and taking their classes.

Kaushik,

Thanks for the post. While the market has slowed, money is being made with these rehabs. Timing and pricing are the key elements.

Flipping is like the stock market when it was going crazy during the tech boom: everyone's a "guru" in a huge bull market. The real pros who actually enjoy renovating homes and take pride in their work will make it through a tough market, while those who solely are in it for the money will not.

Rob - This Casey guy...talk about not having a mind or sense of his own...sheesh...

Fred - Great jetliner/train analogy!!

Joan - Hey, great attention to detail! I don't think I pay THAT much attention to the shows to recall what the homes were selling for....

George - I don't think the infomercial guys lie, per se. What they are preaching can be done, and has been done. But the circumstances have to be right and you need a saavy investor. I would love to see the stats on what transpires on the first transaction post-infomercial/class purchase.....

Michael - I think just like Fred said...the people who really know what they are doing have plenty of reserves, and despite a few losses will make it in any market.

There are so many variables when it comes to the flipping business. Your article indicates a person with 30 plus years working at it and he seems to still have problems with making it, so to speak. I really don't think there's a secret to working the homes and flipping them. Some times I think it's being in the right market at the right time, like everything else.

FEB

2007

In my market the Flippers are having problems. The Flippers like many others got use to the last few years not keeping in mind that markets adjust. So if you want to make a living this way, you also need to keep an eye on what the industry is doing especially in the local marketplace.

William - Money will always be made with rehabs, irregardless of the market. It just takes people who know what they are doing with cash reserves!

Ken - For the majority of cases I agree with you. There are, however, people with a 'knack' - they can flip in any market.

Jennifer - Thanks for the insight!

Hey Kaushik. I saw that article this morning. I agree that the short-term flipping has cooled off. We never really had it in our market. We have an agent in our office that was previously a builder. He doesn't actually flip, he builds, but he never stays in his house more than three years. No telling how much $$$ he's made off of his "sweat".

BTW - I added a link to here from my blog.

What I love about real estate is that each deal is different and it requires thinking or should I say adjustments. As an investor, I try to make my money going into a deal. I celebrate when I buy and try to hold firm to my criteria going in so that I am not hurt going out.

FEB

2007

Brett - Thanks for the link. Some folks who really know what they are doing truly do well flipping homes!

Aziz - Agreed that every transacdtion in real estate is potentially brand spanking new! Certainly adds to the excitement....

FEB

2007

I've done it. It works. It's hard.

I haven't been able to find a good home in our area for three years. A good home is one that will sell cheaply enough that it can be reworked and turned around in a reasonable amount of time.

My wife and I have to agree that we "have a vison" for a particular home before we will make the leap.

FEB

2007

John - It has become harder in lots of markets. Soooo many people are looking at real estate as an investment vehicle now as compared to the past.....lots of potential buyers for a few very 'flippable' properties....

Our market is small and with all of the flipping shows on tv, everyone thinks they can do it. Last week I bid $10,000 below on a HUD home and the successful buyer paid $3,000 more than asking price. We've done this enough to know what it'll take to complete the home, market it and make a profit. I've seen people get started, are not sure what to do, put too much money in and the house is still not finished, not marketed six months later.

I think one of the biggest problems investors have is a lack of exit strategies. They go into a property with one end in mind and as a result, they have no options when they can't sell it back off as they had hoped. If they had approached things with a little more conservative attitude, they might be in better shape and have more options available to them.

Thanks for sharing that link.

Derek

Debbie - HUD homes USED to offer the potential for a bargain. But nowadays, you are right, they often sell for more than the asking price.

Derek - You are right. Many investors don't have exit strategies or even plans in place to begin with...

FEB

2007

There is avery good ebook on this subject. you can get it at http://www.Wholesaling-Realestate.com

MAR

2007

We deal with alot of "flippers" here in Vancouver, WA .. the market is still hot for deals because of the growing number of foreclosures and pre foreclosures that are hitting the market. If an investor buys right they can make some money .. I think the key to flipping is trying not to make a huge amount of money at one time. My investors we work with do multiple houses at a time so if they only make $20-30K a house then it pays off because they have 5 or more projects going at one time .. I have also seen a few flippers go under because they don't stick to the basics in homes ... they try to put to much money into the home... but for the most part if you buy right and sell fast you make it work ..

APR

2007

Mark - thanks for sharing!

Debbie - Putting too much money into a home can easily be the kiss of death for flippers!

Hey you should check out Detroit. The prices are very inexpensive. You can buy a two family home for about $5K to $30K rehab for $30K to $40K. Comps are around $130k to $140K. Detroit offers low purchase price with 40% returns on investment! I will say one has to know what they are doing and have a good staff working for there best interest. The rents are around $600. to $795. a unit! that is $1200. to $1600. a month for one investment.

Check out what I do any time. Hope to hear from you soon.

If the flipping market is viable in so many markets I wonder why more people don't take advantage. Am I the only one who wonders about this? For example the previous poster (Matthew Meli) mentioned Detroit and the ratio of price to rents. If such conditions exist why hasn't the flipping market been saturated? Simply an unwillingness to commit the time and effort?

APR

2007

Flippping in Maryland has gotten a bad name due to negative uninformed press. Flipping products includking properties has been done for years.

We have been involved in over 200 properties that have been controlled (by contdraft) and re-sold before settlement. Is is OK to flip real esstate as long as you all disclosures are made, that you do it honestly and legally.

chalres Parrish

APR

2007

Matthew - Coincidentally enough, I may just be in the Detroit metro around July 4th wknd.

Michael - I theorize that lots of 'flippers' are afraid of sweat labor. Buy a home, watch it appreciate XX % in a couple of years, and sell. But in these markets where appreciation is low or non-existent.....

Rob - Your point in italics is the key!

Chalres - and that you know what you are doing!

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