"Flippers" Get Taste of Losing

[ExFlyBoy5]

Read an article on Bloomberg that illustrates that flipping real estate isn't always the goose that lays the golden egg. The opening paragraph left me shaking my head in disbelief...

Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it. So at 27 he started a side gig flipping houses in the booming San Francisco Bay Area. He was hooked after making $300,000 on his first deal.

A few of the AEs that I know make pretty darn good money. This just seems to be a good example of where greed comes back to bite one in the arse.

Fourth-quarter losses for flippers who sold within a year were the highest since 2009, according to a CoreLogic analysis that looks at buying and holding costs, but not rehab expenses. In the San Jose area, 45 percent of flips lost money.

 

[joeea]

Read an article on Bloomberg that illustrates that flipping real estate isn't always the goose that lays the golden egg.

It's never "always" been.

It's usually good until it's not.

 

[ExFlyBoy5]

It's never "always" been.

It's usually good until it's not.

Very true, but I think a lot of the speculators forgot what the last RE bubble was like and the availability of easy money from hard money lenders is accelerating the issue.

 

[Andre1969]

Back before the "Great Recession", I remember the whole "prosperity will go on forever" mentality that was so prevalent. I caught one of my co-workers telling another one "Hey, wanna double your money in four years? Buy a condo in MY neighborhood!" At the time, condos in her neighborhood were going for around $250K. This was around 2006 or 2007, I think. And, she was right...about 4 years earlier, places in her neighborhood were selling for around $125K. But, nevermind the fact that just about everybody around here was seeing a similar gain during that timeframe.


This woman was delusional, and there was no talking sense to her. But, I did say to the co-worker, don't fall for it. It's one thing to double a condo price from $125K to $250K. But don't think for a moment that it's going to jump to $500K in another 4 years! There's just no way people would be able to afford that kind of rise!


Anyway, they crashed in the Great Recession, just like everything else around here, but then came back, somewhat. One of my friends bought a condo in that same neighborhood in early 2018 for around $210K. So, from 2006/7 to 2018, they were still down about $40K, and that doesn't account for inflation, time value of money, etc.


I remember one of those house flipper shows at the time, where some guy in California said that his property value doubled in 4 years, so he figured he was a savvy businessman, and decided to get into the flipping business. He got screwed pretty bad, as I recall.

 

[joeea]

Very true, but I think a lot of the speculators forgot what the last RE bubble was like and the availability of easy money from hard money lenders is accelerating the issue.

I agree. People seem to forget everything when the stock/housing market is good for a while.

Not unlike those who seem to have forgotten that the market doesn't always go up.

 

[foxfirev5]

As a rather unsophisticated RE investor/builder with 40 years experience, it is no surprise. Having a real job in addition to dabbling helped a lot. DW and I made a fortune on buildable lots in 2006. Lucky for us we sold high and didn't proceed building spec houses.

We've watched the market come back after the crash but have found no real bargains or no brainers as I like to call them. Maybe I'm just getting old but this whole RE recovery has me nervous.

 

[Bamaman]

I was reading how the guy on Nashville Flips on HGTV died this week at age 38. He was doing very well in a real estate market with prices up 100% in the last 6 years.

A house we could buy for $75K will sell for $425K in Nashville--2 hrs. north of us. Couldn't afford to live there even if we wanted to move "home."

I have the building skills to do well flipping houses. But I'm just a little ADHD--taking on too many jobs myself and not hiring help to assist me.

 

[kgtest]

As a rather unsophisticated RE investor/builder with 40 years experience, it is no surprise. Having a real job in addition to dabbling helped a lot. DW and I made a fortune on buildable lots in 2006. Lucky for us we sold high and didn't proceed building spec houses.

We've watched the market come back after the crash but have found no real bargains or no brainers as I like to call them. Maybe I'm just getting old but this whole RE recovery has me nervous.

Had a good millionaire developer buddy go belly up in 2005/06. Used to develop farms into housing, schools and municipalities from the 70s to 2006. Was just too leveraged at the time and never recovered. Land values crushed him and he ended up selling low.

 

[Bir48die]

This a very finicky market. I would never do anything that I didn’t have a specific skill set for. Timing, price points and other factors determine who wins and loses. I’d want to have a very specific niche and master plan along with reserves if I wanted to delve into this area

 

[HI Bill]

To be a successful house flipper, you need to know the markets, the trends, construction, repairs, renovations, finance, and have a lot of extra cash lying around in case something doesn't work out the way you planned, especially if you buy a trashed or dated place and hope to renovate it. If so, you need solid contractors who really know electrical, plumbing, etc,. and can do the work efficiently. Being a licensed realtor helps with costs. It's like being a small business owner, manager, financer, etc. Managing repairs takes some solid management skills. Not for everyone, and not without risks.

I bought an investment property, held it for a year, and watched the price go from $250K to $350K, then fall to $301K when I sold at a very small gain, after costs and comissions, and then bottoming out around $175K a couple of years later. Definitely not for the faint of heart!

 

[foxfirev5]

Had a good millionaire developer buddy go belly up in 2005/06. Used to develop farms into housing, schools and municipalities from the 70s to 2006. Was just too leveraged at the time and never recovered. Land values crushed him and he ended up selling low.

Yeah that time period was a serious gut check and I thank my lucky stars we got out when we did. I don't like to benefit from good luck vs brilliant investment decisions.

 

[jollystomper]

This is what did one of my brothers in. Even with a background in banking and real estate, he let the flipping bug get out of control, and he and his wife ended up over leveraging their assets. When the great recession hit they were so underwater than even gifts from the family (we knew despite promises that we would not get the money back, so we each lent only what we would not miss) was not enough. When the music stopped they had lost everything monetarily and his marriage and relationship with his kids were destroyed. He is very fortunate that he stayed healthy, had other skills to rely on, and lives in a retiree-friendly state, so has managed to get himself financially back on track. But the cost of those relationships, while improved, is still there.

 

[FreeBear]

To be a successful house flipper, you need to know the markets, the trends, construction, repairs, renovations, finance, and have a lot of extra cash lying around in case something doesn't work out the way you planned, especially if you buy a trashed or dated place and hope to renovate it. If so, you need solid contractors who really know electrical, plumbing, etc,. and can do the work efficiently. Being a licensed realtor helps with costs. It's like being a small business owner, manager, financer, etc. Managing repairs takes some solid management skills. Not for everyone, and not without risks.

I bought an investment property, held it for a year, and watched the price go from $250K to $350K, then fall to $301K when I sold at a very small gain, after costs and comissions, and then bottoming out around $175K a couple of years later. Definitely not for the faint of heart!

Seems like a real j*b with real w*rk, not a shortcut to cash on nights and weekends. Lots of industry-specific business knowledge and building knowledge needed or at least available in a cost-effective and trustworthy form.



I'm glad I knew my limitations and was never seriously tempted. Too lazy, and too risk adverse...

 

[NYEXPAT]

Zillow is starting to flip houses in LA , with other cities coming soon. Plan is to ramp it up to 5,000 a month. Lets see how they do with a few quarters under their belt?

 

[brucethebroker]

It is sometimes hard to understand why some people walk away from good paying jobs and take on risks like flipping. IMO, many just hate bosses. We employed a really good handyman years ago, aged 35 or so. Very talented guy who worked cheap. Over the course of a few weeks as I helped out (as unpaid, low skilled, assistant!), the topic of his former, much despised bosses came up over and over. Apparently his hatred of supervisors was so strong he decided he would be happier to earn less and be his own boss. It worked for him.

 

[Winemaker]

Look at all the NYC real estate flippers who got burned by the Amazon initial announcement, only to get burned a few months later when they pulled out.

 

[jfn111]

I work with a couple of "rehabbers", they don't like the term "flippers".
The last house we did she bought for $401,000 and sold for $499,000. (We were shooting for $549,000 but the market shut down for over $500,000 in that area).
By the time everything was said and done she made about $20,000.
Not a whole lot of profit for having that kind of money tied up for 8 months.

 

[ivinsfan]

I was reading how the guy on Nashville Flips on HGTV died this week at age 38. He was doing very well in a real estate market with prices up 100% in the last 6 years.

A house we could buy for $75K will sell for $425K in Nashville--2 hrs. north of us. Couldn't afford to live there even if we wanted to move "home."

I have the building skills to do well flipping houses. But I'm just a little ADHD--taking on too many jobs myself and not hiring help to assist me.

It's actually the host from the show on DIY, but HGTV also has a Nashville flipping show, which might tell that Nashville is overheating...

 

[calmloki]

All our rehabbing was done to suit our ideas of what a place should be and was all kept as rentals. After we had more rentals than I wanted to manage the way I wanted to manage them we went to making hard money real estate loans to some people. No big surprises - a few borrowers were flakes and we weren't adequately secured, a few took the money and stuck us with legal costs and some real ugly ducklings, and a few were professionals who bought right, rehabbed well and fast, and sold at a competitive price. Right now we have one loan outstanding, but it is a big one on a big new construction overlooking the Willamette in Camas Washington. It pays over $5k every month and the builder is someone we have years of experience with. I like the payments but really would be happy to see the place sell and have the builder move on to new projects - as would he!

 

[Chuckanut]

Ithe topic of his former, much despised bosses came up over and over. Apparently his hatred of supervisors was so strong he decided he would be happier to earn less and be his own boss. It worked for him.

For some, it's better to rule in Hell than serve in Heaven. To each his won. Or her own.

 

[Oz investor]

I have the building skills to do well flipping houses. But I'm just a little ADHD--taking on too many jobs myself and not hiring help to assist me.

i don't have the building skills but have something similar ( to ADHD ) so understand what you mean .

no chance of buying a home , improving it ( say on the weekends ) as you live in it , and then selling ... say every 10 to 15 years

or buying a home and adding a granny flat and garage/shed then moving pon during the housing booms .

good luck ( there is probably a slower path to success , you just need to be patient and persistent )

there will be other opportunities where trying extra hard is the correct choice

real estate CAN BE a waiting game sometimes

 

[Oz investor]

This woman was delusional, and there was no talking sense to her. But, I did say to the co-worker, don't fall for it. It's one thing to double a condo price from $125K to $250K. But don't think for a moment that it's going to jump to $500K in another 4 years! There's just no way people would be able to afford that kind of rise!

that sort of rise is possible in periods of 'runaway inflation '

however by then the price of necessities has probably risen 20 or 40 times , so the outcome is still not the success hoped , but will look good on paper ( to show the grandchildren )

i have always seen property as a long term investment

 

[marko]

BIL has tried his hand at flipping and after his 4th house is just a bit over break-even.

He is 'paycheck rich' ($4MM house and all that goes with it and implies) but from what we can see has no clue about the stock market; not that he seems to have much left over to invest anyway.

Flipping had been his retirement plan but now I think he's stumped.

 

[Nick12]

In my part of Florida, flippers are very common. Buying a house in my neighborhood, then rehab the inside of the home namely bathrooms and kitchen, fresh coat of paint inside and outside and flip the house to potential customers like foreigners or snowbirds, 6-12 months later for a nice profit.

 

[ncbill]

I bet I can beat everyone's else's story.

I have a relative who made a little money flipping pre-sale condos at the beach.

So he decided to go in with an investor group who were going to build a high-rise from scratch (not Miami or other urban area, strictly a "beach vacation" area)

Long story short, the Great Recession put an end to that development and it wasn't long before the bank came calling for the amount of the loan he had personally guaranteed (~$3 million, IIRC)