Flipping doesn’t always work!

[technovelist]

Here is a good explanation of exactly how bogus shows like Flip That House are.

[waiting hawk]

Check my website for the Palm Springs “Flip This House” under water home. 15% off fire sale, any takers?

My website tracking Inland Empire

[Doofrat]

Here’s tonight’s FTH:

Bought for $325,000 956 square feet, $80,000 in renovations. railroad track through the back yard (just kidding, the back yard’s too small for a railroad track, it’s just past the fence 🙂 )

Guy’s a waiter, forgot what wife did.

Trying to sell for $479,000, just fell out of escrow, 137 days on market now.

$479,000 – $405,000 = $74,000. Take out the commissions of maybe 4% – 5% of maybe $20,000, gives $50,000 profit.

So far they have spent over $12,000 in carrying costs, so now they are down to $38,000 profit – all the other little costs they forgot about.

I’d call this a failure, but you don’t see that on TV:

http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=C614053&page=18&property_type=SFR&mls=mls_so_cal&cKey=vvk92b47&source=MRMLS

[Mexico Resident]

I’d call that a failure also. Especially if you consider all the time you would have to spend on the project.

[Steve Beebo]

That was a good article. It should be mandatory reading for potential flippers. The author is correct, in that flipping really only works when prices are increasing in a particular market. Real estate has been a great investment long-term – and usually much better when holding properties for at least two years to get preferable capital gains treatment. I think that with the current market, so many thousands of flippers will get burned, that we may never again, (or at least in the next 10 to 20 years), see huge run-ups in prices.

[PD]

We will see it again because memory is short. Lenders were blamed for the last SoCal downturn because they were funding loans that (in hindsight) were unrealitic prices for homes. Everyone decided that lenders had learned their lesson. Ten years later….

[Bugs]

I gotta second PD on that one. I thought the last bust would have positively proven to would-be high rollers that RE can lose. I won’t ever make that assumption again.

[Steve Beebo]

The last downturn in SoCal in the early 1990’s was caused mainly by huge layoffs in the aerospace industry, which caused a recession in LA and SD. There wasn’t nearly as much speculation as there has been in the last 3 years. Loan standards for residential properties were tougher in the early 1990’s or late 1980’s than they are now. There wasn’t nearly as many 100% loans as there are now. If in the next 6 months, there were 50,000 layoffs of high-paying jobs in either the telecom or biotech industry in San Diego, that would be similar to what happened in the aerospace industry in the early 1990’s.

The current downturn has been caused more by excess speculation. Prices are going down even though the overall economy is fairly strong in San Diego, with low interest rates and low unemployment. That’s why I don’t foresee huge price increases in the next 10 or 20 years, along the lines of the 20% appreciation for three stright years that we saw from 2002 to 2004.

[powayseller]

We also thought builders had learned their lesson, and would not overbuild, and would stop buying overpriced land at the top of the cycle. Once again, builders who’ve been through several downturns failed to see the slowdown. Why didn’t they see it coming? Don’t they have economists on their staff, are they in denial, what is the explanation? Why did Toll and two other groups buy remote Phoenix desert land for $56K/acre earlier this year? Sheer stupidity. You’d think Toll would have learned from the last cycle not to do such a stupid move.

[waiting hawk]

Steve the housing market in So Cal was on the skids before those lay offs.

http://query.nytimes.com/gst/fullpage.html?res=9C0CEFD6133BF93AA1575BC0A966958260

My website tracking Inland Empire

[poorgradstudent]

I’ve noticed on Flip This House they often just take the flippers word for it on how much they can sell it for. Such as “Bought for 375,000, 15,000 invested, expect to sell for 450,000, potential profit: 60,000.”

Now, of course “potential profit” doesn’t really mean anything. If I buy a lottery ticket, my potential profit is in the millions!

Still, the shows are interesting. As a non-flipper you can get ideas of what to look for in a house. You can get ideas on what to pay for and what is pretty much just cosmetic. And often times the conversion of the property can be quite striking.

Of course, you can get the same experience from other “House Porn” like “Extreme Makeover: Home Edition” (as an aside, I’m not surprised, but still amused that the spinoff show has far superceded the original “Extreme Makeover”.)

[Chrispy]

I’m annoyed that the media (FTH, major newspapers, etc) state “facts” such as, “The Smiths bought the house for $250K, sold it / can sell it for $400K, and so made / will make $150K profit.”

What about sales commissions? Closing costs? Carrying costs? Improvements? Taxes? Insurance? HOA fees? Mello Roos? I have several friends who claim to have made big on RE sales, but I think they are using the “new math” rules – where you subtract B (original cost) from A (sales price) but don’t consider C and any of its cousins (expenses incurred during ownership) before claiming gross profits.

Not to mention capital gains for property held less than two years – but, with the RE market going south, cap gains will no longer be a worry for many! I think the media doesn’t give the full story, so many think it’s all gravy when in fact, they are the ultimate turkeys.

[Author]

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