Nielsen ratings rank HGTV as the second most watched cable network on TV. These well-produced shows might make flipping look like a path to easy profits. But, take out Texas Fix and Flip Loans with reality TV in mind and your first flip will likely be a flop.
Producers on these shows know that the majority of their audience only cares about design and decoration, but flipping is about investing and not designing. If you want to get into the flipping business, you can't ignore these facts:
• It takes time to find the right deal.
• Financing is limited and carefully structured.
• If a house doesn’t sell in time, it could be a disaster.
HGTV programs devote about three minutes to finding a property to flip and the conversation usually goes as follows:
"Hey, babe. Found a great place, in that neighborhood."
Usually his better half is in some distant office, with a laptop in front of her. She gives a cursory glance to some comps. “Well that's great! We could make this much," she says off-hand.
Then they close, while counting out the cost of repairs on fewer than five fingers. Their biggest obstacle seems to be choosing that perfect white subway tile for the kitchen.
Texas Fix and Flip Loans are given out in draws, so unexpected expenses can put your entire project in danger.
After the happy couples on these shows walk into a perfect deal, money never seems to be a big concern. They seem to have hundreds of thousands of dollars stashed under their mattresses.
About 10 minutes into the program, an issue will invariably pop up that will require an additional outlay of thousands more dollars. Somehow, this is no big deal.
"Hey, babe, there’s some insert problem here, and it is going to cost X amount of money to fix it." To which their better half will invariably will reply, "Oh really? Well, that sucks, but I guess we have to do it. Alright, well, spend the money."
Texas Fix and Flip Loans entail balloon payments, so there’s a lot at stake house doesn’t sell in time
The last five minutes or so of these programs are full of wide-eyed buyers, ogling the impressive rehab work, and then: "We got an offer! Here’s how much we made," and then the credits roll. All usually turns out right for the smiling couples on these programs.
If these programs more closely followed reality they might look something like this:
• Five minutes consisting of months of time-lapsed footage with the frustrated flippers groaning and grunting, bitterly sipping coffee whilst clicking through the online listings. Because, in reality finding the right deal takes time.
• Five minutes consisting of actual rehab work, and when that unexpected issue pops up, there'd be a lot more at stake. Fix and flip financing is based on draws. You get a certain amount of money each month, and if you go over budget on a given month, you might not have enough money to finish your project. So we'd have another five minutes with the couple on the phone asking their lender for some extra money that month.
• Another 5 minutes devoted to selling the house, but once again there'd be a lot more at stake. Financing flips usually entails paying back the entire loan balance after a few months. If the house doesn't sell in short order, you will have to pay back the entire loan out of pocket, and who has a couple hundred thousand dollars just lying around?
With all the tension and looming risk of failure, the true reality of flips might be more interesting than what you see on reality television.
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Dennis Dahlberg Broker/RI/CEO
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.