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  #1  
Old 10-02-2007, 05:43 PM
ralph124c ralph124c is offline
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The Downside of House flipping?

There seem to be a plethora of TV shows, about young entrepreneurs getting rich by flipping houses. The idea is straightforward: you buy a house in poor condition, make necessary repairs, install new kitchen and bathrooms, and do some landscaping. You attempt to do this in less than 8 weeks or so, (so your pofits aren't eaten up by mortgage payements. Hopefully, you've added 100K$ of value with an expendidture of less than $40K-leaving you a hefty profit.
I know this is being done, but I don't think its all that easy to do today. For example: if your house sits on the market for months, you can lose 9big time). A house down the street from us looks to be in this situation-it was gutted and rebuilt-but nobody seems to want it.
Is this a bad time to try to flip?
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  #2  
Old 10-02-2007, 05:52 PM
garygnu garygnu is offline
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The only reason right now may be a bad time to flip is because one can't be sure of the market in the near future. After that ~8 week construction time, things might swing too wildly to be able to predict. That said, any market can handle a flip if you buy it at the right price.
The biggest part of the whole process they don't show is the part where you find a house for really cheap. That part may actually be easier in this market. If you buy the house at a low enough price, you can put it on the market post-flip at a below-market price, hopefully reducing time to sale.
And, yes, you do have to budget for holding costs and closing costs, something they rarely talk about on the shows I've seen.
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Old 10-02-2007, 05:52 PM
sciguy sciguy is offline
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Looks like you're in the wrong forum, I've reported it so it should get moved eventually. Unless you really mean to focus more on the "flip this house" type of TV shows?

In my not-at-all-expert opinion, I'd guess that the recent mortgage flap caused a downturn across all kinds of housing markets. If fewer people are buying houses (because they can't get a mortgage they can afford), then houses are going to be on the market longer (or have to sell at lower prices). I'd say that the past few months were a bad time to try to sell a house at all, and the risk inherent in "flipping" makes things that much worse.
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Old 10-02-2007, 06:01 PM
gazpacho gazpacho is offline
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A big part of house flipping was a rising and crazy real estate market. When prices a rising quickly it is easier to make a profit and it is easier to sell quickly. Also it is sort of optimistic to think you can add $100K of value for $40K.
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  #5  
Old 10-02-2007, 06:11 PM
friedo friedo is offline
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Quote:
Originally Posted by ralph124c
There seem to be a plethora of TV shows, about young entrepreneurs getting rich by flipping houses.
You must not have watched many of them to the end. A lot of the people make spectacularly stupid decisions and get creamed with carrying costs and out-of-control budgets. My favorite is Property Ladder, where the editors always manage to splice in the appropriate reaction shot of resident expert Kirsten Kemp raising her eyebrow, Spock-like, at some horrible idea.

My favorite one was with a trio of young guys who were obsessed with the numbers two and eight, and who constantly bickered about who should do the most mundane tasks. They spent something like three months on what was supposed to be a three week flip. At the end of the show they still hadn't gotten an offer, and they had no intention of lowering their absurd asking price.

Still, an equal number of people with good heads on their shoulders manage to stay mostly within their budget, focus on the most valuable upgrades and get things done in a timely manner, and make an excellent profit.

All that said, with the real-estate market rapidly deflating in a lot of areas, it doesn't seem like a good investment strategy at the moment. Flipping requires being able to sell relatively quickly at a good price, or you end up wasting money paying interest on the mortgage. Buyers are scarce right now and becoming scarcer in almost every market except New York. (But New Yorkers are all crazy people, so don't pay attention to them.)

Last edited by friedo; 10-02-2007 at 06:13 PM..
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  #6  
Old 10-02-2007, 06:14 PM
LurkMeister LurkMeister is offline
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I had sold my house in Chicago last November; it was a 100+ year old Victorian which a previous owner had "improved" with vinyl siding, suspended ceilings with fluorescent lights, and medium (at best) quality wood paneling. I sold it as a fixer-upper "as is" within two months of putting it on the market. The realty agent was pretty sure that the buyer was intending to flip it to order, especially since he had brought another person with him on a second walk-through. I was talking to my sister the other day, and she told me that she'd heard there had been seven dumpster loads of stuff cleared out; since I had left the place completely empty I can only assume that the interior had been gutted. She then added that she'd also heard that the prospective re-buyer had changed his mind, and that the buyer was now living in the house while trying to find another buyer.

I think I was lucky to sell when I did; I suspect if I had waited until spring (as I had considered doing) I wouldn't have gotten as much as I did for it. I'm wondering now what I'm going to find when I start house-hunting here next year.
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  #7  
Old 10-02-2007, 06:39 PM
Flander Flander is offline
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Quote:
Originally Posted by gazpacho
. Also it is sort of optimistic to think you can add $100K of value for $40K.
That's a big part of it. You need to make improvements that are going to benefit the house without taking too much time, spending too much, or, over-improving the property. I'd have an inspector check the house too to make sure there aren't underlying damages that will make a project a bust to begin with.
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  #8  
Old 10-02-2007, 06:46 PM
JSexton JSexton is offline
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The most common way people think they can flip houses is via foreclosures. What they fail to realize is that there is a pool of sharks that's been buying those houses for years, and if you manage to buy a house at auction instead of them, there's probably a very good reason that you're missing.

One of the biggies is this: Say a house is coming up at auction, with the starting bid at 125K, which is the amount remaining on the trust deed that is in default. The house is worth 200K. You bid and buy it for 140K. Bargain, right? Except there was a second mortgage on the property that wasn't in default, and you're now on the hook for the 45K 2nd. They also haven't paid their property taxes (3K) or the contractor that mostly repaired the septic system (8K). You now owe 196K on your 200K house, and the septic system still needs work. Oops.
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Old 10-02-2007, 06:46 PM
Ike Witt Ike Witt is offline
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The house next door to a friend of mine was used in one of these shows. I can tell you that the people in the area hate the concept.

An addition was built on and ruined the scale of the house on the lot.

The refurbished house was put on the market at a higher price than is common in the area (I know that is the idea of flipping) but it pisses off the neighbours when it drives up their property taxes.
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  #10  
Old 10-02-2007, 06:46 PM
ralph124c ralph124c is offline
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I did see one of these shows where the buyer ripped open the walls of the house-and found serious rot/termite damage everywhere. There were also nice items like galvanized pipe plumbing (allneeding replacement), and an ancient electrical system. I guess any house older than 40 or so years is liable to have major problems, that aren't always forseeable. And what happens if you "over build"-that is, put too much in for the neighborhood? All in all a riskey business
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  #11  
Old 10-02-2007, 06:50 PM
friedo friedo is offline
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Quote:
Originally Posted by ralph124c
I did see one of these shows where the buyer ripped open the walls of the house-and found serious rot/termite damage everywhere. There were also nice items like galvanized pipe plumbing (allneeding replacement), and an ancient electrical system. I guess any house older than 40 or so years is liable to have major problems, that aren't always forseeable.
Some of it would probably have been foreseeable if they had a competent inspection done before closing on the property.

Quote:
And what happens if you "over build"-that is, put too much in for the neighborhood? All in all a riskey business
Indeed. Many people have priced themselves out of the market by building too fancy for the neighborhood. Few people want to live in a jewel-encrusted mansion surrounded by plywood shacks.
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  #12  
Old 10-02-2007, 06:52 PM
gazpacho gazpacho is offline
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Originally Posted by adam yax
The refurbished house was put on the market at a higher price than is common in the area (I know that is the idea of flipping) but it pisses off the neighbours when it drives up their property taxes.
Adam, where do you live? That would not raise the neighbors property taxes in California.
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  #13  
Old 10-02-2007, 07:18 PM
Jurph Jurph is offline
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Originally Posted by gazpacho
Adam, where do you live? That would not raise the neighbors property taxes in California.
Property taxes in most places are based on the value of the home; the "value" of a home is in turn based on the recent sale prices of similar homes in the neighborhood. A 3BR place with all the trimmings will sell for more than a vanilla 3BR, but all of the owners of the vanilla 3BRs will still get hit with property assessments based on the sale price of the ritzy 3BR. How do they do property tax in California?

Last edited by Jurph; 10-02-2007 at 07:19 PM..
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  #14  
Old 10-02-2007, 07:27 PM
Antinor01 Antinor01 is online now
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Quote:
Originally Posted by Jurph
Property taxes in most places are based on the value of the home; the "value" of a home is in turn based on the recent sale prices of similar homes in the neighborhood. A 3BR place with all the trimmings will sell for more than a vanilla 3BR, but all of the owners of the vanilla 3BRs will still get hit with property assessments based on the sale price of the ritzy 3BR. How do they do property tax in California?
1.25% of the purchase price of the property annually.
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  #15  
Old 10-02-2007, 07:29 PM
Voyager Voyager is offline
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Quote:
Originally Posted by Jurph
Property taxes in most places are based on the value of the home; the "value" of a home is in turn based on the recent sale prices of similar homes in the neighborhood. A 3BR place with all the trimmings will sell for more than a vanilla 3BR, but all of the owners of the vanilla 3BRs will still get hit with property assessments based on the sale price of the ritzy 3BR. How do they do property tax in California?
Thanks to Prop 13, our taxes only can go up by a set amount per year, and houses aren't reassessed unless you do major revisions to them. The people we bought our house from were paying under $1,000 a year (for a house worth over $300K 11 years ago) and ours have hardly gone up in this time, though the prices has doubled. People moving in get hit with higher rates.

When we lived in NJ everyone got reassessed every few years.

As for the OP, two houses got flipped near us. They got gutted and redone in a style not matching the houses around them, and made bigger. And they both sat on the market for over six months. There was also an article in the local paper about a clown who tried flipping all over the Western US, and lost his shirt.
Around us I think the idea was for the renovation to put the house in the $1 million range, with high margins. I think it stopped working.
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  #16  
Old 10-02-2007, 07:31 PM
Voyager Voyager is offline
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Quote:
Originally Posted by Antinor01
1.25% of the purchase price of the property annually.
Thus resulting in neighbors with houses of similar value paying wildly different amounts of property tax. And old people staying put, since downsizing to a house half as big might cause a big increase in property tax.
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  #17  
Old 10-02-2007, 07:45 PM
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The big downsides, which are itemized on maybe one out of ten flip shows, are that you can customize the house far beyond the neighborhood maximums and those who can afford the house would never live in the neighborhood.
And the other is that the sales commissions, mortgage costs, bridge loans and inspections, taxes and fees are far more than the flip profit, resulting in a net lioss.
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  #18  
Old 10-02-2007, 07:49 PM
An Gadaí An Gadaí is online now
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Those programmes usually depict novice "flippers" who are endeavouring on such an investment for the first time and are possibly ignorant of hidden costs, time delays, things going wrong, the wider market etc.
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  #19  
Old 10-02-2007, 07:50 PM
Throatwarbler Mangrove Throatwarbler Mangrove is offline
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There is no downside, if you have a surefire way of convincing some sucker to pay you $100k for $40k worth of work, you SHOULD be filthy rich. That's the free market.

Last edited by Throatwarbler Mangrove; 10-02-2007 at 07:51 PM..
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Old 10-02-2007, 08:00 PM
Roland Orzabal Roland Orzabal is online now
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  #21  
Old 10-02-2007, 08:07 PM
gazpacho gazpacho is offline
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I California the assessment is base on purchase price. Proposition 13 back in the 70s did away with revaluing the home based on upswings in the housing market. Back then people were being priced out of homes that they had lived in and owned outright for years and years. It is a little more complicated than described but that is the main point.
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  #22  
Old 10-02-2007, 08:38 PM
friedo friedo is offline
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Quote:
Originally Posted by Throatwarbler Mangrove
There is no downside, if you have a surefire way of convincing some sucker to pay you $100k for $40k worth of work, you SHOULD be filthy rich. That's the free market.
It's not as if this is unusual. A factory spends $1.00 in parts and labor to build a widget, and sells the widgets for $5.00 each because that's what people are willing to pay. Doing productive work often adds value in excess of the cost of the work -- this is one of the ways that markets create wealth.
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Old 10-02-2007, 09:12 PM
Princhester Princhester is offline
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Originally Posted by JSexton
They also haven't paid ... the contractor that mostly repaired the septic system (8K).
Contractors have a lien on a house that survives sale?
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Old 10-03-2007, 09:02 AM
FatBaldGuy FatBaldGuy is offline
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Originally Posted by Princhester
Contractors have a lien on a house that survives sale?
That's the purpose of a lien. Title to the house cannot be transferred until the lien is settled.
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Old 10-03-2007, 09:14 AM
Wee Bairn Wee Bairn is offline
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One of those shows recently had a guy on who priced his flipped house 20k more than the other houses in the area, and the other houses were better quality in better condition. At the end of the show it said it had been on the market for months and the guy would definitely lose money on the monthly note alone.

I think a few of those shows stretch the truth a bit- they show a house being completely gutted, rooms added on, complete landscaping, fencing, lighting, plumbing, and only spend 40k or so- I know day laborers are cheap, but not that cheap- the salary for 10 men for three months even at day labor rates would be several thousand.

And one chick who bought a completely trashed 800 sq foot house in a bad Pasadena neighborhood for 300k, and put it on the market for 1.2 mil, I wonder about those as well.

Last edited by Wee Bairn; 10-03-2007 at 09:16 AM..
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  #26  
Old 10-03-2007, 09:17 AM
Wee Bairn Wee Bairn is offline
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Side question- I see infomercials where some guys claim they buy and resell a house without a dime of their money- is this true? And how is that done?
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Old 10-03-2007, 09:24 AM
FatBaldGuy FatBaldGuy is offline
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Originally Posted by Wee Bairn
Side question- I see infomercials where some guys claim they buy and resell a house without a dime of their money- is this true? And how is that done?
The THEORY is that you can buy a house with no down payment and then sell it before the first payment comes due. In reality, this hardly ever works out.

These guys make their real money by selling their "method" to the suckers who watch infomercials.
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  #28  
Old 10-03-2007, 09:26 AM
An Arky An Arky is offline
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As adam yax touched upon, through the neighbors eyes, house flipping is a matter of some interloper coming in and being disruptive. Add a few TV cameras and foofy spokesmodels, and you've got a real fine boondoggle. Not to mention it's likely your new neighbor is a dupe.

So, one of the downsides of house flipping is that people who consider their neighborhood home don't like it being used for carpetbagging speculation. The new neighbor is unlikely to be greeted with smiles and fresh-baked pies.
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Old 10-03-2007, 10:22 AM
Princhester Princhester is offline
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Originally Posted by FatBaldGuy
That's the purpose of a lien. Title to the house cannot be transferred until the lien is settled.
Well some liens survive sale and some don't. But what really surprises me is that a contractor has a lien at all. Is that commonplace in the US?
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  #30  
Old 10-03-2007, 10:30 AM
Rube E. Tewesday Rube E. Tewesday is offline
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Originally Posted by Princhester
Well some liens survive sale and some don't. But what really surprises me is that a contractor has a lien at all. Is that commonplace in the US?
Yes, and in Canada. Variously known as a mechanic's lien, construction lien, builder's lien. Here's the relevant Ontario statute, for example.

http://www.e-laws.gov.on.ca/html/sta...es_90c30_e.htm
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Old 10-03-2007, 10:36 AM
FatBaldGuy FatBaldGuy is offline
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I'm not sure how things work in Australia, but it seems to me that a lien that did not "survive sale" would be pretty worthless.

In the US, the function of a lien is to "prevent" sale by not allowing transfer of title (of a house, car or other property) until the debt is settled and the lien removed.

In most cases, it is the responsibility of the seller to make sure that all liens are satisfied before the sale is closed. In the event of a bank repossession, however, that onus may well be shoved off to the buyer.
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Old 10-03-2007, 10:55 AM
Renee Renee is offline
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Originally Posted by An Arky
As adam yax touched upon, through the neighbors eyes, house flipping is a matter of some interloper coming in and being disruptive. Add a few TV cameras and foofy spokesmodels, and you've got a real fine boondoggle. Not to mention it's likely your new neighbor is a dupe.

So, one of the downsides of house flipping is that people who consider their neighborhood home don't like it being used for carpetbagging speculation. The new neighbor is unlikely to be greeted with smiles and fresh-baked pies.
I don't really understand this. My husband and I have flipped a few houses (did well, not 100K well, but quite good) and the neighbors were always thrilled to have someone come in and fix up the abandoned dump on the street. We always had wonderful relationships with the neighbors. And when we sold the houses for a lot more than we bought them for, they were thrilled about that too, because it raised the comps for the neighborhood for when they wanted to sell. Maybe it's because the properties were in Arkansas, where the property taxes aren't very high, but who doesn't want their property value increased?
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Old 10-03-2007, 11:05 AM
Leaffan Leaffan is online now
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Don't forget about capital gains taxes if the house isn't your primary residence.
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Old 10-03-2007, 11:09 AM
An Arky An Arky is offline
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Quote:
Originally Posted by Renee
I don't really understand this. My husband and I have flipped a few houses (did well, not 100K well, but quite good) and the neighbors were always thrilled to have someone come in and fix up the abandoned dump on the street. We always had wonderful relationships with the neighbors. And when we sold the houses for a lot more than we bought them for, they were thrilled about that too, because it raised the comps for the neighborhood for when they wanted to sell. Maybe it's because the properties were in Arkansas, where the property taxes aren't very high, but who doesn't want their property value increased?
Actually, you're right about that aspect, and I failed to include that in my post. Indeed where the house or neighborhood in question actually needs someone to come in and improve it, then it can be a good thing.

I think this varies by type of neighborhood/housing market. In my neighborhood, houses are expensive and small, but it is decidedly middle class, for the most part. Some folks have come in and demolished the modest middle class house and shit out a gigantic McMansion with cupolas and other bling, actually blocking the neighbors' sun and generally sticking out like a sore thumb. These are the kind of neighbors that aren't generally welcomed. We don't need to raise property values here or have blighted properties in need of "rescue".

Last edited by An Arky; 10-03-2007 at 11:10 AM..
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  #35  
Old 10-03-2007, 11:58 AM
Gangster Octopus Gangster Octopus is offline
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Here's a cautionary tale about flipping.
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Old 10-03-2007, 12:07 PM
friedo friedo is offline
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Quote:
Originally Posted by Gangster Octopus
Here's a cautionary tale about flipping.
That's not a cautionary tale about flipping, it's a cautionary tale about being a criminal. Casey Serin committed several acts of mortgage fraud, used his wife's and relatives' names to obtain credit for himself, and sundry other heinous crimes. Then he fled to Australia for a while to avoid his family who have rightfully turned their back on him, but eventually came back. Now he's being investigated by the FBI, and indictments are rumored to be around the corner.
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Old 10-03-2007, 12:26 PM
Gangster Octopus Gangster Octopus is offline
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Originally Posted by friedo
That's not a cautionary tale about flipping, it's a cautionary tale about being a criminal. Casey Serin committed several acts of mortgage fraud, used his wife's and relatives' names to obtain credit for himself, and sundry other heinous crimes. Then he fled to Australia for a while to avoid his family who have rightfully turned their back on him, but eventually came back. Now he's being investigated by the FBI, and indictments are rumored to be around the corner.
True enough, I didn't mean to imply that this was indicitive of flipping, or that flipping is inherently bad, just that the mindset that flipping can bring quick money can potentially lead you down a bad path.
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Old 10-03-2007, 03:40 PM
TLDRIDKJKLOLFTW TLDRIDKJKLOLFTW is offline
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Call me a left-brained namby-pamby liberal or whatever, but a major downside IMHO (where this thread should be, btw) is that it turns something that should be very intimate and personal - a place to live, one's home - into something speculative that drives up prices and keeps homes away from more people that would like to own them. This is A Bad Thing.
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Old 10-03-2007, 04:35 PM
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Originally Posted by VCO3
Call me a left-brained namby-pamby liberal or whatever,
You're a left brained namby-pamby liberal.!

Seriously though, if you are in the market for a house, you have some ideal in mind. You may be the type who enjoys fixing things up around him. Good, then you buy the rundown building and do the rehab.

Others may be the type that like to buy their houses all shiny, new and clean. They buy them from someone who has done the work already. May be a new home contractor, a homeowner moving on, or a flipper who has fixed up an older or neglected home.
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Old 10-03-2007, 05:34 PM
Voyager Voyager is offline
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Originally Posted by FatBaldGuy
The THEORY is that you can buy a house with no down payment and then sell it before the first payment comes due. In reality, this hardly ever works out.
Especially not now. Our paper today had an article about people making over $150K a year with excellent credit not being able to refinance because they had no equity in their houses, and the mortgage company is betting that prices will be going down.

I thought a few of these schemes involved putting a down payment on credit cards.
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Old 10-03-2007, 07:04 PM
Princhester Princhester is offline
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Originally Posted by FatBaldGuy
I'm not sure how things work in Australia, but it seems to me that a lien that did not "survive sale" would be pretty worthless.
Well under our Torrens system the register is king. If you have an unregistered security interest and the property changes hands, you're screwed as against the property.

But still no one has answered my question: do contractors who work on houses commonly get liens in the US?
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Old 10-03-2007, 07:15 PM
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Originally Posted by Princhester
...But still no one has answered my question: do contractors who work on houses commonly get liens in the US?
Depending on your definition of "common," yes, they do. What's especially bad is when it's a sub-contractor that the general contractor didn't pay, but the lien goes on the house.
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Old 10-03-2007, 09:56 PM
msmith537 msmith537 is offline
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Quote:
Originally Posted by VCO3
Call me a left-brained namby-pamby liberal or whatever, but a major downside IMHO (where this thread should be, btw) is that it turns something that should be very intimate and personal - a place to live, one's home - into something speculative that drives up prices and keeps homes away from more people that would like to own them. This is A Bad Thing.

It also turns shitholes and crack houses into something people would actually want to live in. To successfully flip a house, you generally need to buy a house that is undervalued for the market it is in. This usually means it is in disrepair.


Really, the downside for the flipper is that you get a house that requires more work than you expected, you realize you know jack shit about home building, are unable to sell the house, incur a ton of holding costs and ultimately lose a ton of money.

I actually have a degree in structural engineering and worked for a year dealing primarily with residential properties, and I'm ok at fixing shit. I don't feel comfortible flipping a house.

These Flip That House shows make it seem like any idiot can buy a house, not know what the fuck they are doing and after several weeks of scrambling around with a bunch of contractors, pull a half million dollar home out of their ass.
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Old 10-03-2007, 10:32 PM
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Quote:
Originally Posted by VCO3
Call me a left-brained namby-pamby liberal or whatever, but a major downside IMHO (where this thread should be, btw) is that it turns something that should be very intimate and personal - a place to live, one's home - into something speculative that drives up prices and keeps homes away from more people that would like to own them. This is A Bad Thing.

As a hijack, from my perspective as a contractor, we are moving more and more into an idea of houses being a commodity, as opposed to one's home. Perhaps that's from the rapid increase of value, and people thinking of it more as an investment, or perhaps it's people moving on average every 4-5 years, as opposed to generations living in the same house, perhaps it's more effective marketing, or perhaps it's from the big builder's actually making it a consumer item.
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  #45  
Old 10-04-2007, 07:58 AM
Trunk Trunk is offline
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I think that house flipping was somewhat akin to day trading.

When houses were appreciating so fast. . .shit, you probably didn't have to do any work. You could buy a $300,000 house in January and sell it in June for $330,000. The premiums attached to flavor-of-the-month interior decoration just made it worthwhile to drop in a granite countertop and a couple stainless appliances.

Day traders during the net boom probably felt pretty good when they sold stock A, bought stock B watched it rise and then sold it for a profit. Ignoring that stock A was probably appreciating at the same rate as B. The idiot didn't know anything about A or B. He was just profiting from the rising tide.

The upshot is that the major downside is that you can become extremely leveraged, and be on the hook for hundreds of thousands of dollars when the market stops appreciating so rapidly. That's why this downturn has really expanded into the banking industry moreso than the dot com collapse ever did.
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  #46  
Old 10-04-2007, 09:11 AM
muldoonthief muldoonthief is offline
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Quote:
Originally Posted by Princhester
Well under our Torrens system the register is king. If you have an unregistered security interest and the property changes hands, you're screwed as against the property.

But still no one has answered my question: do contractors who work on houses commonly get liens in the US?
Do you mean do contractors take out a lien as part of the contract? No, not at all. But if the contractor has completed all the agreed upon work, and the owner refuses to pay, and you've got a reasonably well written contract, it's pretty straightforward (not necessarily easy, but straightforward) to get a lien on the house, which will prevent a sale.

ETA: I'm getting this from my BIL, who has had to do this twice (once to a lawyer!)to deadbeat customers.

Last edited by muldoonthief; 10-04-2007 at 09:12 AM..
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  #47  
Old 10-04-2007, 11:40 AM
RickJay RickJay is offline
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Quote:
Originally Posted by ralph124c
There seem to be a plethora of TV shows, about young entrepreneurs getting rich by flipping houses. The idea is straightforward: you buy a house in poor condition, make necessary repairs, install new kitchen and bathrooms, and do some landscaping. You attempt to do this in less than 8 weeks or so, (so your pofits aren't eaten up by mortgage payements. Hopefully, you've added 100K$ of value with an expendidture of less than $40K-leaving you a hefty profit.
I know this is being done, but I don't think its all that easy to do today. For example: if your house sits on the market for months, you can lose 9big time). A house down the street from us looks to be in this situation-it was gutted and rebuilt-but nobody seems to want it.
Is this a bad time to try to flip?
House flipping wisdom all depends on location, location, location and project planning, project planning, project planning.

The problem with house flipping is that if you're an individual or a couple leveraging all your credit to flip a house, the penalty for failure - whether it's because of your own stupidity or just bad luck - is bankruptcy and personal ruin.

House flipping is sort of a gigantic version of being a professional poker player. You can be a professional poker player if you're good at playing poker, but your expectation of profit is an average, not a per-sitting guarantee. Poker players are all about bankroll; you need a big bankroll becuase you'll go through periods of bad luck where you keep losing. If you have enough bankroll, that's okay, because your luck will even out. If you don't, you end up living in a fridge carton.

House flipping has a similar element; if you have a huge bankroll, it's not the end of the world if a flip goes badly. But if it's stretching you out to max your credit cards, and it goes badly, your next stop is filing for bankruptcy. That's why the shows with the most successful flips are the ones about house-flipping companies, who flip a dozen houses a month. If you have investors and funds to handle a large number of flips, it's built into your business plan that one or two will go down the pipes every now and then. IF you're flipping one with all your money, it has to succeed.

The other factor, of course, is skill. Most failed house flips are simply due to a lack of project planning; someone thinks "I have some access to money, I can flip a house" but doesn't actually put enough effort into costing, task planning, and project management. It's just straight up business common sense that before you embark on a big project, you're supposed to analyse, to a high degree of confidence, what the costs will be in terms of money AND TIME. When you see people on those shows get into deep shit, it's always because of one of three things:

1. They arbitrarily set a budget of X, only to find it was going to cost far more than X,
2. They assumed they could do the work themselves and then found it was going to take far more man-hours than they anticipated, or
3. The house was in worse shape than they thought because they didn't know enough about houses to know any better, thereby aggravating conditions 1 and 2.

That nevers happens with the flip companies like those guys in South Carolina, because project management is their profession. They have staff whose professional expertise is in looking at a house in condition A and estimating, with accuracy, how many dollars and man-hours it will take to move it into condition B, and then executing that plan with speed and efficiency. If you know THAT, then you can rely on real estate experts to tell if the expected profit will exceed the cost of going from A to B.

So if you're going to flip a house as an individual, and you're not really rich, you had best know what you're doing in terms of project management.
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  #48  
Old 10-04-2007, 12:59 PM
gazpacho gazpacho is offline
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RickJay that sounds pretty close to actual work.
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  #49  
Old 10-04-2007, 01:22 PM
Renee Renee is offline
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Quote:
Originally Posted by gazpacho
RickJay that sounds pretty close to actual work.
Oh, it's work. It's damn hard work, but we found it really rewarding (we did 95% of the manual labor ourselves).
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  #50  
Old 10-04-2007, 01:28 PM
gazpacho gazpacho is offline
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I worked with a guy who would do this the slow way. They would buy fixer uppers and live there taking a few years for each house and eventually lived in a large nice house that they would not have been able to afford without the sweat equity generated along the way.
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