Tonights Flip This House

[PerryChase]

Sounds like those shows are good entertainment.  Too bad they don't have the DVDs on Netflix (I don't have cable). 🙁  

[smfj]

I’m addicted to “Property Ladder” (not “Property Latter” as the auction page said… that was pretty bad). I Tivo it every Saturday night. I think they actually do a pretty good job of showing that flipping is not an easy buck. There have been several flippers that have either made minimal profit, still had the property on the market at the end of the show, or decided to turn it into a rental after not selling (of course, they all say they will do it again, which I find hilarious). They also show people’s mistakes, which I think is good (for example, the newlywed couple didn’t get a full inspection before buying).

I hate that “Flip This House” always makes it look like a walk in the park. That just makes me mad, so I don’t watch it.

“Flip That House” was good when the group from SC was on – they’d been in business a long time, knew what they were doing, and generally came off as successful, not greedy. The new group is sleazy.

I really don’t think there’s anything wrong with flipping houses for profit. No different than any other business. The ones who will be successful in the long run are the ones who know the market well enough to make good decisions on purchases, pricing, and design, and have relationships with subcontractors and suppliers that enable them to minimize their costs and time. Even the amateurs that did one or two flips at the right time are better off for doing so. It’s the morons who get greedy or have unrealistic expectations that will lose out big time.

[IONEGARM]

“I really don’t think there’s anything wrong with flipping houses for profit. ”

Well, when you get it en masse, like we’ve been seeing it essentially destroys the low end of the market. But then many of the flippers fail and everything normalizes.

[poorgradstudent]

“I really don’t think there’s anything wrong with flipping houses for profit. ”

I think ethical flipping would involve buying a fixer-upper, renovating it, and then selling it at a profit. I guess I’m not sure if that even counts as “flipping”.

To me the distinction is between actually adding value and creating something as opposed to just buying and expecting to sell it at a huge profit.

[JES]

Let’s look to the stock market as an analogy. Is it unethical to buy stock in multiple companies with the intention of making a short term profit? Will it be unethical for baby boomers to pull their retirement funds out of stocks, cash in their profits and live off the proceeds? Is it unethical for you to put $$ in a education stock fund for your kids, with the hope of making good returns and sending them to college?

Definition of ethical = Conforming to accepted standards of social or professional behavior.

Flipping still passes the professional test as it is not illigal and is actually promoted by corporations and government policies. Whether it conforms to socially accepted standards is the real question!

[JES]

Duplicate

[smfj]

“To me the distinction is between actually adding value and creating something as opposed to just buying and expecting to sell it at a huge profit.”

poorgradstudent, agreed that there is a difference. I was talking about the former, which I would consider “flipping” vs. “speculating” (which is what I would call the latter). One could argue that there are social benefits to “flipping”- fixing up the neighborhood eyesore, for instance. JES is right, though – “speculating” is not illegal, and similar to speculation in the stock market. Whether it’s ethical or not is an interesting question.

[JES]

Yeah, I would say that it is almost socially beneficial to flip if you are going to do repairs and upgrades. If someone buys an investment property and then flips it in a year, that seems OK to me as well. Unethical things I have seen include employees of homebuilders with inside knowledge buying multiple properties in early phases and flipping them. Also, I once saw a realtor who bought 4 x homes in a Centex community here during a hot market with waiting lists and she lived in one, flipped it, moved to the next, flipped it etc.

[(former)FormerSanDiegan]

On whether speculative flipping is ethical …

Suppose person #1, the breadwinner of a family of 4 investigates the real estate market in 2004 and sees an opportunity to flip a house for $50K profit to pay towards his kids’ education. Is this ethical ?

Suppose person #2 investigates the real estate market in 2004 and sees an opportunity to cash in and sell their primary residence to pay for their kids’ education when they think real estate has peaked, plans to rent for a while, and buy in later at a lower price. This is also speculation. Is this ethical ?

Assume that the houses are identical and sell for the same price and all aspects of the property are disclosed.

I have to believe that these are both ethical. There is nothing inherently morally wrong with a person identifying a legal way to produce income or savings by buying or selling a property based on speculating what value that property may have in the future.

[PD]

There is nothing unethical about flipping or speculating on real estate. Buy low, sell high. So what? It is unethical for lenders to put people into suicide loans. It is unethical for the real estate industry and individuals to lie to buyers and sellers.

[JES]

I agree with you FormerSanDiegan. I do think that laws need to be tightened to prevent the kind of flipping we are seeing because it can damage communities. But in the end homeowners need to be held responsible too. There are ways to stay away from flippers and investors. For example, my recent experience has taught me to be wary of all new developments because there are too many investors, buyers who are stretching their finances, and other games going on that make for an unstable neighborhood. Better to buy in an established area where the neighbors paid in the 300s for the homes, there are no investors, and where most people are there for the long haul and not many homes go up for sale.

[PerryChase]

Lenders are just serving a menu of products. They want to maximize their profits.

It is unethical to sell Coca Cola, cigarettes or fatty food? These will certainly harm the consumers.

I think that people who make bad decisions will have to pay eventually. The economic downturns serve to clear up the excesses.

[(former)FormerSanDiegan]

JES –

I agree on most points, except one. I don’t see how laws could be tightened to “bad” speculation without also negatively affecting others. How do we legally separate the speculators from the poor soul who bought a house in January, is diagnosed with cancer in April and sold in the summer for a profit ? Or the guy who gets a job transfer notice out of the blue, three days after closing escrow, in a rising market. Both of these “lucky” homebuyers would have effectively flipped for a profit during the heyday of 2003-2004.

In the end, I think we agree that the market participants (traditional buyers) and people with vested interests (neighbors) ultimately will win out over the speculators and irrational buyer behavior.

[SD Realtor]

Couple of points… PS and others who don’t have cable. These shows are very entertaining. I think that they do a disservice by not displaying the outcome and I also believe they are not portraying the amount of time and effort it takes to successfully rehab a home. Again though they are very entertaining.

I think inhibiting free markets is not in the best interest of our country. I think that if people are smart enough to take advantage of market conditions, INDEPENDENT of what that market is, then more power to them. Lots of money was made in speculation and now lots is being lost. Good for the winners and tough luck for the losers. Why do you guys want to restrict others who did well. Personally I am jealous and envious. I wish I would have taken the risks to buy a few homes in 2001 and spin them but I didn’t. So if banana’s shot up to 5 bucks a pound would we limit people who speculated on them? Would we say that nobody can buy more then 6 bananas a week or prove you have a large monkey at home to justify that consumption? That no you cannot buy 200 bananas now just to sell them at 6 bucks a pound next week. We need to make sure everyone can buy bananas. (I know this is a ridiculous analogy)

Don’t we have an entire stock market and futures system that is based on speculation?

I am sorry but I don’t buy into the morality issue because I don’t see it? Perhaps many people who were priced out of the market are VERY HAPPY that they didn’t buy now. Perhaps they could have relocated to a cheaper area as well. Perhaps they simply could have saved more money and continued to rent.

I think that limiting opportunity based on a “moral” issue does not work in a free market economy in the long run. Intelligence, and patience, and not buying something you simply cannot afford are what will ultimately work out for you.

[JES]

As far as laws and restrictions are concerned, I agree that the free market should continue to be free, but we will always need laws. And those laws are impacted by what society deems as moral. I would not be in favor of a law that dictates how many homes you can buy, or who can and cannot buy, but even current tax laws provide incentives and disincentives for various actions, in the housing market and also the stock market.

For example, even if you sell your primary residence before two years are up you can still claim a partial tax break if you had a death in the family, lost a job etc. If you don’t meet the criteria, you get no breaks. These laws are in place because as a society we have decided that it’s beneficial to give tax breaks to encourage home ownership, but also to encourage people to keep the home at least two years to provide some stability to the market. Builders and communities are also crafting rules against flipping because they have realized that flipping can have a negative impact on business and neighborhoods.

Arguments I’ve see about the morality of this center more on the disruption and instability to neighborhoods it causes and not necessarily on the fact that a family now has to pay more for housing. And most of my beefs with the current system have to do with non-independant insiders gaming the system without consequence. Buyers also need to be held accountable to know that flipping is going on and to stay away from those areas, just like they should be expected to know that a 1 month interest only loan might be a bad idea.

[Author]

Posts