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Anybody ever Flipped a House?
My hubby and I are thinking of doing this. I know the market is slow now but he really wants to try while we can get a cheaper property to start on.
We have plenty of expendable income to handle the debt indefinitley, enjoy doing the little things like drywall, painting and basic things like installing new sinks and faucets.
My only worry is I know a little about the real estate market from researching homes when we were looking, but we were looking for a much more expensive home than what we are looking to invest in now. My hubby is relying heavily on my design skills since I designed our home and everyone raves on my choices, however I wonder if the difference in buyers may have completely different criteria on which they base their buying decisions.
Any tips, advice, experiences with this sort of investment? Anything would be greatly appreciated.
Thanks
Jasmine
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Re: Anybody ever Flipped a House?
Do you watch the show Flip That House on TLC? If I learned one thing from it, it's the people who profit the most are the ones who get in and get out quickly. I would start watching it to see some of the disasters people run in too and how they handle it or should have handled it.
I'm interested to hear others responses too, this is something I'm also really interested in.
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Re: Anybody ever Flipped a House?
This is what my man does, except in a more profitable sense.
"flipping" in the straight sense has somewhat small profit margins in most areas. in a flip, you buy a run down house, spruce it up a bit, and sell it for more.
People's profit gets eaten up by unexpected expenses (bad plumbing! termites! rotten pier-and-beam foundation!) and holding costs. Don't forget that for each month it doesn't sell you have to pay the mortgage.
Concerning the real estate market in your area, do a lot of research. Pull the "comps" for the neighborhood you are looking at, they will tell you how many houses are for sale there, and what the average price is on the ones that have sold recently. Most neighborhoods have a price ceiling. You just can't sell a $400,000 house in a $250,000 neighborhood. The best house for a flip would be the cheapest house on the street.
When remodeling the house for sale, focus on kitchens and bathrooms. They give you the most bang for your buck. Forget about texturing the walls or other frilly stuff like that. What worries me is you say something about your design skills being an asset. What exactly are you describing here? IMHO, most things that would fall under the category of design skills wouldn't give you much return on your investment.
More info plz.
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Re: Anybody ever Flipped a House?
I've done it a few times back in the mid 1990's but I wouldn't really wouldn't recommend trying in the current market. It's a pretty big risk to try right now, even for someone with lots of experience.
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Re: Anybody ever Flipped a House?
the key to being successful with this sort of endeavor is making absolutely sure that the local real estate market isn't going to decline in value between the time that you purchase the 'cheaper' property and the time that you are ready to put it back on the local real estate market after your improvements are made. Depending on exactly where you are in NC, much of the area is reportedly booming from a white collar business growth standpoint so there shouldn't be much reason for concern re property value declines.
This sort of endeavor is also ideally suited for ARM financing - providing that you can find one that doesn't have an early repayment penalty.
Another timing issue is the reported falloff in business levels at Home Depot, Lowes etc. This falloff is reportedly due to the fact that more and more homeowners are running into financial trouble re ARM mortgage payments increasing, local property taxes increasing, real estate market falling thus making refi's / HE loans impossible, creditworthiness standards tightening thus making refi's / HE loans impossible etc. This should lead to some major 'bargains' becoming available later this year as the sales of kitchen and bathroom fixtures slow down.
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Re: Anybody ever Flipped a House?
Home Depot is showing it's pain - a friend of mine bought a stainless steel refrigerator for 30% off. He also found mattresses are becoming a good deal too.
To flip someplace, you got to find the most horrible wretched building in a decent enough neighborhood. Then figure out how much one could sell it for (tricky these days) and then figure out how much it will cost to fix it.
Now if Home Depot and others are selling items at 30% off and the like - your costs might be 30% off too. That opens up the profit margin.
If I were doing it, I would try to look in affordable housing for the first try. Smaller numbers and a place to get an education. There are few whale buyers anymore but you might have more "affordable" home buyers. I'm thinking in terms of how many more walk thrus are going to be available.
Watch those obituaries! :)
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Re: Anybody ever Flipped a House?
Quote:
Originally Posted by
austinatalie
"flipping" in the straight sense has somewhat small profit margins in most areas. in a flip, you buy a run down house, spruce it up a bit, and sell it for more.
People's profit gets eaten up by unexpected expenses (bad plumbing! termites! rotten pier-and-beam foundation!) and holding costs. Don't forget that for each month it doesn't sell you have to pay the mortgage.
Concerning the real estate market in your area, do a lot of research. Pull the "comps" for the neighborhood you are looking at, they will tell you how many houses are for sale there, and what the average price is on the ones that have sold recently. Most neighborhoods have a price ceiling. You just can't sell a $400,000 house in a $250,000 neighborhood. The best house for a flip would be the cheapest house on the street.
When remodeling the house for sale, focus on kitchens and bathrooms. They give you the most bang for your buck. Forget about texturing the walls or other frilly stuff like that. What worries me is you say something about your design skills being an asset. What exactly are you describing here? IMHO, most things that would fall under the category of design skills wouldn't give you much return on your investment.
More info plz.
Quote:
Originally Posted by
Deogol
Home Depot is showing it's pain - a friend of mine bought a stainless steel refrigerator for 30% off. He also found mattresses are becoming a good deal too.
To flip someplace, you got to find the most horrible wretched building in a decent enough neighborhood. Then figure out how much one could sell it for (tricky these days) and then figure out how much it will cost to fix it.
Now if Home Depot and others are selling items at 30% off and the like - your costs might be 30% off too. That opens up the profit margin.
If I were doing it, I would try to look in affordable housing for the first try. Smaller numbers and a place to get an education. There are few whale buyers anymore but you might have more "affordable" home buyers. I'm thinking in terms of how many more walk thrus are going to be available.
Watch those obituaries! :)
You do NOT have to find the most dilapidated homes in the area. You have to find the homes that you can flip the fastest. The best money we make is when we sweep in, buy a home, do general cosmetics on it, and then flip it out. You have to know what you're doing and give yourself a reasonable time line. You cannot think that you are going to completely overhaul an entire home in 30 days with $40,000. If you can find a home that's been on the market for 6+ months, has little/no curb appeal, has a decent interior that needs some updating/sprucing up...that's probably your best bet. Leave the overhauls to people who know what they're doing and have the money to go over budget slightly...and also have the dedicated crews to do this work.
The biggest mistake that new flippers make is going to find a totally dilapidate house and learning about this business that way. The worst thing you can do is do THAT with no money...no experience...and then go belly up because you have a house you cannot finish...cannot flip...and you're right back to where you started.
In this market, you'll find a lot of homes that need simple cosmetics done to it...but that the homeowners cannot or will not do...buy it cheap, spend a little fixing it up...sell it cheap (not too cheap, but low enough to sell fast).
Do your research...do your research...and then do some more research.
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Re: Anybody ever Flipped a House?
Watch 'designed to sell' on HGTV for learning about how to design with buyers in mind.
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Re: Anybody ever Flipped a House?
Quote:
Originally Posted by
VenusGoddess
You do NOT have to find the most dilapidated homes in the area. You have to find the homes that you can flip the fastest. The best money we make is when we sweep in, buy a home, do general cosmetics on it, and then flip it out. You have to know what you're doing and give yourself a reasonable time line. You cannot think that you are going to completely overhaul an entire home in 30 days with $40,000. If you can find a home that's been on the market for 6+ months, has little/no curb appeal, has a decent interior that needs some updating/sprucing up...that's probably your best bet. Leave the overhauls to people who know what they're doing and have the money to go over budget slightly...and also have the dedicated crews to do this work.
The biggest mistake that new flippers make is going to find a totally dilapidate house and learning about this business that way. The worst thing you can do is do THAT with no money...no experience...and then go belly up because you have a house you cannot finish...cannot flip...and you're right back to where you started.
In this market, you'll find a lot of homes that need simple cosmetics done to it...but that the homeowners cannot or will not do...buy it cheap, spend a little fixing it up...sell it cheap (not too cheap, but low enough to sell fast).
Do your research...do your research...and then do some more research.
You are correct, a newbie should not take on a dilapidated house. There is a little more skill in estimating the cost to fix it for the less obvious.
An inspector is your friend before buying!
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Re: Anybody ever Flipped a House?
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Originally Posted by
Deogol
An inspector is your friend before buying!
an inspector, but not an inspection. You can get some awesome deals on a house if you don't insist on an inspection and give a really low ball offer.
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Re: Anybody ever Flipped a House?
Unfortunately, another thing to keep in mind is the 'unintended consequences' of rising subprime mortgage defaults. This is already resulting in a tightening of creditworthiness standards for would-be borrowers, an increase in down payment requirement, actual verification of borrower's income etc. As such, if you do take on a run down 'starter' home for an upgrade project, be very aware of the category of potential buyers once your upgrade is finished.
For example, if you buy a $100,000 run down house in a blue collar neighborhood, do the upgrade, and attempt to flip the house for $150,000, you need to be very aware of the category of potential buyer who is willing to live in the nicest house in a blue collar neighborhood. This is probably NOT going to be a 'white collar' buyer, because even though the upgraded house is nice there are also considerations like local school system and local crime rate that come into play. But with tightening creditworthiness standards, any would-be buyer may need to cough up a 20% or $30k down payment, and may need to have a verifiable $50k annual income, in order to obtain financing 6 months from now. This could lead to a resale trap where many people who could qualify to buy your house don't want to live in the neighborhood your house is located in, whereas other people who would want to buy your house and be happy living in that neighborhood can't obtain financing !
This sort of problem can be avoided by going 'upscale' i.e. buying a run down house in a 'white collar' neighborhood, but this will probably require twice as large of an investment thus twice as much risk. And 'white collar' housing may involve risks of its own in the near future, given that default rates on Alt-A mortgages are now rising to the point that Alt-A mortgage bonds are being derated right along with subprime.
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Re: Anybody ever Flipped a House?
Work out ahead of time what the division of labor wil be between you. If you guys pitch in everything will go faster! See if you have friends or relatives that woud be willing to come along too. Call in that favor from your handy relations and friends.
Do your homework on reputable contractors. You don't want to get taken! And you don't want to be stuck waiting around for your crew for days at a time because you're their lowest priority job. See where you can get supplies cheaply to keep costs down. Be sure the property you pick doesn't have structural problems or electrical problems. You want the property that is sound but a little shabby and funky looking, and perhaps a little out of style.
Oh, and be sure to get whatever permits you need ahead of time so you don't get shut down and have unpleasant delays! Good Luck!!
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Re: Anybody ever Flipped a House?
Quote:
Originally Posted by
Emily
an inspector, but not an inspection. You can get some awesome deals on a house if you don't insist on an inspection and give a really low ball offer.
Actually, by getting an inspection done and having a list of every single thing that needs to be done, from the cosmetics, to the major helps to lowball the price.
I don't care how "good" a seller is...they all think that their house is worth way more than it actually is. If you can present an unbiased list of problems that affect the value of the house (all problems do) you can talk your way into a much lower dollar amount. If you don't do the inspection and the sellers are "sure" that their $150,000 house is worth $200,000...well, then you have nothing to stand on to prove otherwise. Which is why we use inspectors giving a full top to bottom inspection and RE's who give fair market value. We go for the lowest dollar amount to start with and will not go over the fair market value.
You are better off NOT going to the seller who's house went on the market within 3-6 months ago and are still occupying the home. The homes to look for are the ones that are vacant/cosmetically run-down/logging market times at over 6 months.
Especially as a NEW flipper...you never EVER offer to buy a home without a FMV AND an INSPECTION REPORT. You are not qualified enough to see the major issues that are not smack in front of your face. I had a friend who did this and learned a hard $15,000 lesson the hard way (floors were rotten and the entire first floor had to be ripped out, fixed, and then new flooring laid down...lots of man hours and materials).
Even if the FMV and inspection reports cost you $300 up front...pay it...it'll save you thousands in the long run.
Also, one last piece of advice...just because you purchase a property for $100,000 and put $45,000 worth of upgrades/labor/etc into it does not make it worth $145,000. It does not make it worth $200,000. You have to know what the areas trends are...usually the money spent in the bathrooms and the kitchens are what bring the most money back...but you have to research and find out, dollar for dollar, what upgrades, etc you should do to recoup the most of your investment.
Sometimes purchasing a home for $85,000, putting $15,000 worth of upgrades/upkeep into the home will realize a sale of $200,000...giving you a profit of $100,000. Sometimes purchasing a home for $150,000 and putting $15,000 in upgrades/etc into it will realize a sale of $190,000...giving you a profit of $25,000. And, sometimes you make a foolish purchase of $100,000 put in $15,000 and sell it at a loss at $105,000.
Research, research, research. Know what the affordable housing dollar amount is and try to sell the house, competely finished, for slightly under that value.
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Re: Anybody ever Flipped a House?
I agree on get a damn inspection for sure.
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Re: Anybody ever Flipped a House?
I don't know. if someone is desperate to sell, you can get a good deal as long as you do an informal inspection before you do an offer.
I just bought an investment property for super cheap this way, but I had help when I did the initial walkthough. I'm not saying go without an inspection. I'm saying submit a reaaaaly low offer without insisting on an expection. Totally different.
You make money in RE when you buy, so keep that in mind. The idea is to get it way under value, and people that are desperate to sell are the only ones from whom you can get away with that....so make your offer quick and easy for them to make the little bt of money they are going to make.
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Re: Anybody ever Flipped a House?
^^^ but again you need a reasonable degree of certainty that, however cheaply you are able to buy a house, you also need to be able to sell it at a higher price in order to realize any profit. And you need to be able to sell a house period in order to recover any portion of your capital investment. This was of course taken for granted until the subprime mortgage explosion. But today's news confirms that the Alt-A mortgage lenders are also taking a major beating as well ...
My concern is that as more and more lenders go belly-up, the remaining lenders will become more and more wary and will severely tighten creditworthiness standards, down payment requirements, and income verification requirements for future mortgage loan applicants. If 1/2 of future mortgage loan applications get turned down because the would-be borrower's existing debt load, lack of cash savings for a 20% down payment, or level of verifiable income disqualify the applicant, that will translate into a whole lot of houses on the market and very few buyers actually being able to buy !!!
Being saddled with a 'flipper' property that you can't sell into the local market for an amount that is at least equal to your initial investment plus costs of improvements is a formula for losing money. Every month that the 'flipper' property owner must sit on the property waiting for a 'break even' offer is another month's mortgage payment plus another month's property taxes plus another month's insurance premium plus another month's utility bills. The Alt-A mortgage lender bankruptcy is clear evidence that mortgage problems extend far beyond the subprime market as was first claimed !!!
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Re: Anybody ever Flipped a House?
of course....that goes without saying that you expect to sell it for much more than you paid for it.
I'm just talking numbers. I'm talking about how to get the seller to accept the lowest possible offer. it should always be about numbers. if they don't want your low ball offer, there are other sellers out there.
it's not your residence. You should never be married to anything except making money.
Again, I'm not saying just offer willy nilly. You do your own inspection, just not an official "offer is contigent on inspection" as part of your offer. There is a degree of risk involved with this, but speculating in real estate is all about that.
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Re: Anybody ever Flipped a House?
Your biggest problem is going to be finding reliable/ quality help . Also remember contractors usually take holidays off so don't plan on doing too much work from Nov- Jan because you will hit a lot of off days , I have seen this in motion many times .I have not grown big enough balls to do this yet but when I do I am going to hire some of my construction friends and they will make a % off the house sale and I will carry the loan . This way I hope to keep progress moving quickly since each worker will make some profit in addition to his weekly wages .
Also if you dont mind moving every couple of years ( I do ) buy a fixer upper live in it and sell it off after 2 yrs ( avoid the taxes) . With kids this may prove very difficult .
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Re: Anybody ever Flipped a House?
Was watching CNBC earlier today and they were talking about sub-prime mortgages and foreclosures. They are expecting them to be in the millions. Having a bunch of property on the books for banks means a fire sale of millions of homes is coming.
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Re: Anybody ever Flipped a House?
I think you have to reconcile the objective of flipping with the reality of a down market.
When I was in Florida and the houses were going up 20% / year, it was the time to flip. You could purchase a house or condo for $300,000, put in $10,000 and flip it out for $380,000 because the demand is there.
Don't get sucked into a "good deal" market. When prices are declining or inventory is stale it is almost impossible to flip. You are fighting the trend line and instead of riding a 20% power curve up, you are riding it down. And don't forget real estate commission and property taxes in addition to interest of carrying the loan.
I just bought a house that was assessed for $411,000 for $375,000. It is in a great neighborhood but they just aren't selling. However, I am moving into it not selling it.
I am not worried about the selling price on my current home because if I buy right on my new home, I don't have to worry as much about taking a hit.
Does that make sense?
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Re: Anybody ever Flipped a House?
Quote:
Originally Posted by
Deogol
Was watching CNBC earlier today and they were talking about sub-prime mortgages and foreclosures. They are expecting them to be in the millions. Having a bunch of property on the books for banks means a fire sale of millions of homes is coming.
yes exactly !!! And with the beginnings of bankruptcies with the Alt-A lenders as well as with the widespread bankruptcies among subprime lenders, the types of homes that will be put up for fire sale in the next year or two is going to include both 'blue collar' and 'white collar' properties and neighborhoods.
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Re: Anybody ever Flipped a House?
Thanks guys for all the responses! I have my hubby reading all this and he says he is aware of the forclosure sales that are going to start throughout the country, but thinks it is going to be a while and doesn't think our area is going to be one of the hardest hit due to the surge of positions in the financial industry (even though factory jobs have taken huge hits). He has an Masters in finance and one in management and has always been very conservative with our money, so I usually go with him on finacial decisions.
austinatalie & venus- By my design skills he means that I am a girl and can therefore coordinate the kitchen tile with the cabinets and countertops and such (I have no skills beyond that). Also we will probably stage anything we try to sale. Would this help resale value? We have all this awesome furniture in our house that doesn't get used so we will use that.
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Re: Anybody ever Flipped a House?
i flip houses, on the side too, cause i kinda enjoy it, i don't flip all houses thou, i have a couple rentals too, which by the way is a good back up for positive cash flow. at this point i can get houses for 100% financing and either sell them after a brief fix up or refi them if i'm keeping them w/ tenants also after the fix up. (that way u don't get raped on the interest rate) i think staging is very important in flips. i stage both my rentals and my flips, the tend to go a lot faster (proven by research) the way i cheat w/ staging: blow up furniture w/ slipcovers= living furn, 2 chairs+board +tablecloth= kitchen table, blow up mattress+ 4 paint cans+blanket=bed...etc...just be creative, for those couple of weeks half my house decor moves into the house being shown. (pictures, plants...)the ones i like to flip are middle class single families underpriced due to their horrific uglyness, i don't like to mess too much w/ any major problems (plumbing, structure..)i usually do most the work myself, cause i feel like hiring people cuts into my money, but usually its just cosmetic stuff, i can tile, drywall, paint, carpet, hang cabinets and redo kitchns and bathrooms. btw, my fav trick for kitchens is just painting the cabinets and splurging on nice hardware, i also do granite tile kitchen countertops, people really love them for some reason., oh and i buy all my supplies on ebay and craigslist. right now i still have 3 rentals, and i flipped 4 houses making between$20-50k on each one, the main thing thou, is that i really like all the heavy labor, i can slave for 10 hours/day and be as happy as a clam. its not for everyone thou.
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Re: Anybody ever Flipped a House?
^^^ it's also not without an increasing element of future risk. The ability to re-fi a 100% mortgage can no longer be taken as a 'given'. Lots of 'flippers' who have used 100% financing and ARMS to acquire their target property are now finding that, in order to re-fi and thus avoid interest rate shock when their ARM payments readjust, they are now being required to come up with 20% down payments plus cover any negative differential between their original mortgage amount and the current market price.
Those who lack this sort of additional cash then find themselves 'stuck' with their original ARM, with the rising monthly payments changing their rental cash flow picture from positive to negative when their ARM interest rate resets.
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Re: Anybody ever Flipped a House?
hmm my mortgages weren't arms , they were 80/20s, i try to stay away from those, and i aim for the properties whose value i'd be able to raise by at least 20% by remodeling (helps that i have my real estate license and know a couple of appraisers)