There is a new show on HGTV ( Home and Garden TV) here in Canada called The Big Flip. Basically is prety much the same as all the other flip shows I’ve seen before but it happens to be shot in Toronto. The problem these guys seem to have is finding the right property. With the price of houses lately you cannot find anything worthwile to filp because everyone expects top dollar regardless of condition. I was wondering what the economics of flipping a house were. You would think that in good times it would be easier because people are willling to pay high prices but at the same time it makes finding that property to flip harder. Much the reverse in hard times. Does it make good business sense to try and flip houses?
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Replies
It always makes good business sense to buy low and sell high. Right now its difficult to sell high, and VERY difficult to buy low.
Other than that, things are just peachy for flippers!
Brooks
Watch out remodelers!
The CSI shows produced record numbers of college enrollements in Investigative Science........now we have got flippers on TV talking about making $250,000.00 + in two weeks. Reality TV, I think not.
It may be similar to the following:
If you do not know anything about pro baseball I have an offer to take you thru the learning process.
For a mere $250,000.00 agreement I will teach you the game so you can make the pros. Think aout it. You could make $10,000,000.00 a year, making your investment a mere drop in the bucket. Check out some to these facts...it is easy.
You only have to get a hit 3 out of 10 times. The pitcher has to throw the ball into this little bitty square to strike you out, and he is 60 feet away. There are only 9 players on the other team covering this huge field, and one of them is behind you. The outfield is so big it might as well be a cow pasture and there are only three players to catch any ball you hit to the outfield. And, my goodness, the outfield is only 90 - 120 feet away from where you are hitting. There are hitting ranges all over the country where you can practise for a few quarters. There are lots of teams and each team has lots of players with lots of positions to fill. Most of the players make lots of money and are typically dissatified, going from team to team depending on who offers the most money. If you get in there with a good attitude and gratefulness for a small entry level salary of $1,000,000.00 a year.... teams will want you.
I need to get paid an advance of $125,000.00 and in full when your training is complete in 2 weeks. How do you get $250,000.00? Take out a second mortgage and use your credit card cash advances. Sure there will be a debt, but think about it, $250,000.00 versus $1,000,000.00 a year, and they do offer big huge million dollar bonuses just for signing a contract. You will make up your investment in one day.
Of course, if you not that physical, let me introduce you to AmWay.
Edited 11/21/2006 9:34 am ET by txlandlord
Edited 11/21/2006 9:36 am ET by txlandlord
lmao
OK, I am old and not internet abreviations savy.
What is Imao? Is it like DW / LOL / FYI / THC / LSD, ETC.
laughing my asz off...
Hey, you're not kidding. Those flip shows must have starting popping up 3 or 4 years ago, because suddenly all the 'affordable' houses needing renovating dried up. I spent over a year and a half finding my current project house and ended up paying about $15k more than I would have liked to. And during that 1.5 years I saw some people paying outrageous prices for houses that needed massive work.
If it were up to me, I'd cancel all those darn shows so that there'd be less people running the prices up.jt8
"Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree." -- Dr. Martin Luther King, Jr.
jt8
you have a great point there, the real funny part is on a lot of these shows they show the "Potential Profit" which catches the eyes of most people. What a lot of people then forget is if this house doesnt sell well theres another mortgage payment, there is also realtor fees if they choose to have an agent list their property. It really looks easy in a half hour but to do this for a living it gets tough -- just my 2 cents
No way, it's easy. Just start eating sawdust for breakfast.
That will get you into shape for what's to come.
I agree. I've seen about a half dozen episodes of various flip shows and for probably 5 out of 6, I'm sitting there wondering if other people really think it was a great deal?!
For instance, one had a small house in LA. They were gushing about how he was "planning" on clearing $90k on it! Like some cheap infomercial or something. I'm sitting there thinking, "he is going to have around $900k in that house before he's done." The guy was only looking to make at most 10% on his $$, and in the meanwhile he was taking on HUUUUGE liabilities.
He ended going over budget, over on the time to get it done, and they never actually showed the house selling. At $900k, you're probably looking at a $6k/mo payment, almost all of which is interest. If that sucker sits there for a year, you're looking at more than $60k in interest charges.jt8
"Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree." -- Dr. Martin Luther King, Jr.
John, sounds like they finally ran a reality show that was real. A rarity.Woody
The shows I've seen there wasn't actually a sale, just a walk-through appraisal by the realtor. So it's all hype-othetical (sp error & pun intended). And as you stated, the realtor fees are never included as well as the tax liability on the net gain.
It's funny that you posted that. that's my exact thinking. I also feel that the puposely leave out the real estate fees so people don't know what agent is proposing to charge.
I'd guess that they try to find the lowest % they can get. That one will bite them in the a$$.
On the flips that I've done I expect the realtor to move off the full commision % with the knowledge that they will be relisting the property immediately, otherwise it's a no-go. 2 sales on the same property within a relativley short time span is a good way to roll some cash for the realtor. I don't expect them to take it in the shorts, just not full %.
VaVince: I know of folks that ignore the process of Permits & Inspections but it's a pretty stupid move if they were to consider that what they're doing is a business venture and not following the P&I process just increases the risk exposure in the event of any type of incident that incurs $$$ or worse, injury or death. The usually small amount of increased $$$ spent on making it to code is a minor inconvenience for having that extra layer of protection.
I notice in these shows they never show replacement of the HVAC or other mechanicals! Big ticket items.
Never seem to show structural issues that anyone in the trades knows will be there on 30 or 40 year or older houses.
Never show that these people do nothing but a cosmetic face lift
Never show the home inspector for a buyer picking it apart.
Never show the building inspector saying what the He!! is this.
Never showing the closing contract!!
Well we either talk about really flipping houses or the reality shows because the two arent on common ground.
I flip houses for part of my living and its a business or a trade if you will.
Anyway to answer the authors question ; Yes. You can always find deals anywhere but its a job just like anything else and like a cowboy that ges bucked off a lot , a busted butt is the only payday after months of work ,sometimes.
As was stated to me as a parrellel to a cowboy to an investor , is not all ridin and shootin.
What it is, is constant numbers and finding the numbers to work from to make offers. Selling is easy. Any body can sell one .
Now to the reality shows of flipping ;
DW watches flipping shows every night since we are in that business. I dont watch them but seldom. DW and I argue a lot about them and the shows acually make me mad. Comparing a pro baseball player is closer to the real truth. The people dont know how to do the work so how would they know the faults of a house . Inspectors arent shown so where do they get their knowledge before they buy? Most of the skill in evaluating a building is being able to read what it reveals under it , around , on top in the attic , etc. Every building tells a story but you must be able to read its brail if you will. Ah, thats enuff.
Tim
A local blogger has been keeping track of "Flippers in Trouble". He's starting to charge for access but you can still get access of the report from last week. It's an interesting look at the down side specifically in the Sacramento markethttp://flippersintrouble.blogspot.com/
http://flippersintrouble.blogspot.com/2006/11/sacramento-2006-11-11-part-i.htmlDiane
I wonder how many of these are true flips or are where relocations(like us) or divorce, money troubles casued by varible interest rates, etc.
Yep!
Ride Im' cowboy.
Don't do much flippin but buy and rent. Lot harder work than most realize.
As was stated to me as a parrellel to a cowboy to an investor , is not all ridin and shootin.
LOL. "it is not all ridin and shootin" I like that, I am crackin up. I can use that.
It reminds me of another good one I tell employees: "Don't stop lookin for work just becasue youv'e got a job."
I've already stole it.
"Being a cowboy aint all ridin and shootin" - Tim Mooney
It reminds me of another good one I tell employees: "Don't stop lookin for work just becasue youv'e got a job
Thanks for that comment.I mostly sub from a window and door place and a small time builder and could sub from two other contractors. I have been trying to pin them down as far as keeping busy this winter but that saying motivates me to chase somemwork on my own. I was going to try to branch out more in the spring anyway but nothing like the present.
All my houses were bought with lots i could divide, Buy house fix and rent, wait 5 years extra lot worth more then whole place to start with plus the house went up, Did it 3 times swore i would not sell and flip and get caught paying it all out in taxes and realtor fees, Sounds easy my friends say, Its not one place took 3 years to divide, Keep plumbing tools extra washers and dryers clean gutters, Dig up water line leaks in the ground, When the big builders go to city hall they fall all over themselfs to help them when you go in ya gotta work with them and if your not from that town good luck, I like that baseball link you may have that much of a chance, All my houses were bought from people i knew and had helped, I never made an offer i told them to tell me what they wanted, At the time a lotta guys told me i paid too much but there still renting and shut out, They wanted to steal it and got nothing
I tend to see them as a %. I don't pretend the area is going to go up in value 200% in the next year, I just compare it to what they are selling for now. So if they sell for $200k and I can buy it for $175k, I'd be thinking, "about 88%", which to me would mean that if it needs anything more than a paint job it is going to be hard to make $$. Not enough freeboard.
When I see a flip show where they're at 80 or 90% at PURCHASE...and the house needs lots of work, I just can't believe it. At that point you're watching a cheap, lying infomercial.
I seem to remember a while back that you were talking about percentage-levels where you liked to purchase. You might go into that again as a refresher for us less experienced folks.
jt8
"Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree." -- Dr. Martin Luther King, Jr.
"I seem to remember a while back that you were talking about percentage-levels where you liked to purchase. You might go into that again as a refresher for us less experienced folks."
Well, DanT and I were discussing that in a thread a long time ago.
While percentage has nothing to do with the equation after a while of figuring different ones, percentage always surfaces as becoming relative . In other words , if you figure one type of house over and over with about the same amount of repairs , it keeps coming up that after you solved all the math problems , you need to buy the house for 60 percent of a updated market analysis, for example.
Most of my buys normally fall between 50 to 70 percent although its not relative . For some reason we just keep track of percentages. So when we see the every day starter house of 1000 sg ft that was built in the 60s to 70s , and let us say the damages total around 5 to 10 thousand range labour and material, 70 percent is the best I can offer here for that price of house . That starts us on another topic you brought up but before we discuss that Ill mention than DanT and I both stated separately at different times that rentals never worked if they were bought at over 70 percent. Over and over the figgures just land there . We can also see a house and say , thats a 60 percent house . That house has more repairs , so the percentage ends up being a noticeable rule of thumb that keeps popping up time and time again until we learn them.
It would be confusing to end above with out explaining the already outstanding question with my post so far. Im sure the percentages look terribly cheap.
Well, the reason they look cheap is because the houses are low cost houses and it still takes a minimum to operate. My minimum for taking on a house as a project is 10,000. I buy houses as cheap as 50,000 that I can make 10,000, so the realitive percentage is 20 percent .
On a higher priced house a lower percentage can be used to pay our operating cost. I think thats what some of the shows portray. Like 10 percent of 470,000.00. While that looks pretty sweet to see that on a show happen in 30 minutes , they dont show the worried days and sleepless nights Freddy Fender was singing about . Well it was lonesome too. Its lonesome to be the only one that believes in a property while we are married to one . That reminds me somtimes of being azz deep in a swamp of aligators when that wasnt where I thought Id be in the beginning . Anyone who has watched sports a lot knows damn well momentom can reverse quickly. You can find a bear on your azz sometimes when you were the tiger comming in. So seldom will I buy a property under a 20 percent profit margin. I too have been shocked at the low percentages Ive seen because the risks are the same or more than mine because of the lack of knowledge they normally have on the show.
The percentages just keep popping up every where so we indenify them as such.
Tim
Do you do all of this in your head? My brain is built on a slow processor so I made an excel sheet that I run in my PDA to help me figure the numbers quicker & clearer & consistently.
Do you do all of this in your head?
I used to. Not anymore . It wasnt a feat for the game was pretty well fixed. Ill explain;
I operated for 10 years or so looking for rental prospects in 3 bd 2 ba houses. At the time I learned the value of the critters. I knew the costs of materials and labour I needed and of course the billing rate of my own. During which time I bought 3bd 1 baths and some 2bd 1 baths. I looked for the smallest houses in the category after learning a small one will rent for nearly the same as a bigger one. Anyway my sq footages stayed between 900 to 1200. I didnt need to know what a 1500 sq ft house was worth. These houses I was seeking also fall into first time homeowner loans which was a flooded market at the time with little inventory. The same is true today and has never changed here. That market still remains at over 50 percent of the market in this factory working town.
So yea , I could do one of those houses in my head. Enough to turn in a bid the same day I viewed it . If you bid one per day you cant spend a lot of time on them. My ratio was close to 10 to 1 of bids being accepted. The one house I got had to pay the time spent on the ten I had spent time on. Some people dont mention that fact . The bulls that they didnt ride .
Tim
Finding the houses is the hardest part.3-4 months ago a friend of a friend of a friend asked me if I wanted to buy her house.I said yes and I'll come look at it. I told her I buy fixer uppers and remodel them myself and sell them. I said "just like you see on TV".I looked at it and called her the next day and said "I don't think your house will work for me, it's too nice".She said "go ahead and make me an offer". I told her the house would sell for $90 to $95 after it was fixed up.I said I can only offer you $60 and I don't want to insult you. I explained how I arrived at the offer and gave her a list of my expenses which would total about $20 K.She said "I appreciate the offer and I'm not offended and She said I think it's worth more than $60 though".I gave her my suggestions and what repairs to make and how she could sell her house without using a realtor.We ended as friends and I asked that she keep me in mind or call me if she wants to ask any questions or if I can help her.Last week my friend told me the above seller had been thinking about things and had tried some other avenues without success and as things stand right now she's probably going to take my offer.The point of this story is the above process is one of the ways of finding these houses. I don't think you'll find them in the MLS system or in the newspaper. Good Luck!^^^^^^
S N A F U (Situation Normal: All Fouled Up)
They also never show them writing a check for the capital gains tax if they do make a profit.
I don't think they enjoy the luxury of only paying capital gains taxes if they are flippiing. Flipping profits become ordinary income as dealer property and aren't eligible for the more favorable capital gains schedules.
Maybe Bill Hartman will weigh in on this one.
blue
It is worse than that.A casual flipper, that is one that just does one every couple of years and is not in construction business, MIGHT get by with captial gains treatment. But it would still be short term and the rate is the same as ordinary income.BUT, for someone either in construction or regular flips, then it would be business income. That is taxed at ordinary rates PLUS SE TAXES.
Maybe there is a Flip Show forum that we can blitz, or perhaps we could do the BT Remodel / Flip....The Truth flip show. I have a video camera.
I think if we did an investigation, we would find the shows are funded by realtors and lawyers....maybe bankruptcy lawyers.
I like your idea, but forget about trying to hit 3 out of 10 times.My consulting service teaches you to throw left handed for a mere $100K! You don't even have to invest the quarters in those pitching machines for practice! How many left handed pitchers are paid $1M to come in for one or two batters every 3rd or 4th game?! You can even "work" into your 40's (see J.Orosco)collecting that $1M paycheck. You don't even have to break a pane of glass with your "fastball" (see J.Moyer). You can even drink all the beer you want since fitness is definitely not an issue (see D.Wells among dozens of others).The only job in America that is better is 3rd QB in the NFL. I'd say backup QB but they actually have to put the clipboard down once in a while and get pummeled by big D-Linemen!;-)
Yea, pitchers...you don't even need to step to the plate in the American League, and are certainly not expected to hit in the National League. Just throw the ball, even if you do make the starting rotation you only have to work every 4th or 5th game.
If you suceed like the Rocket, you only have to come to the ballpark on the days you pitch.
And, let me tell you about promotional advertising endorsement income.
awesome do you take checks
i only made 50 bucks doing amway but i want to play baseball
hell if i can catch a 2x4 when standing ona wall i can catch a ball with a glove standing on the groundFriends help you move.
Real friends help you move bodies!
Take your $50.00 AmWay income and buy a vowel bstcrpntr, you'll be better off.
Did you deduct your AmWay starter kit cost from your gross AmWay income?
No, if I did I wouldn't ahve made a dime.
Friends help you move.
Real friends help you move bodies!
where do i sign up....?
I'm always amused when friends "think" i'm lucky.....
dang how come you find stuff like that.....
wow you made 5k on one roll of the dice.....
you had exactly what you needed to fix that at 3am on a sunday....
I really think these folks have no clue... and i don't correct em... that when you work 7 days a week... take risks everyday... and have some concept of what might break in the future and have kinda sorta planned for it... how lucky you get sometimes...
there should be a risk reward factor in everything and knowing about what you are doing always helps to lower the risks... I have never bought & sold... I buy & hold I've sold....exactly 3 properties in my life .. 2 to get out of partnerships....
p
i think the guys who sell the "sure you can do it just like me and get rich" deals... are true artist... they paint a picture in thin air... to where some folks can see it and never question if it's there or not to the point they are willing to purchase it... for alot of money... WOW
Edited 11/23/2006 10:26 am ET by ponytl
I fllipped once but just made wages, Kept the rest and did all my own work, sometimes 14 hour days and thats not stoping to eat, Explane to your wive you cant finish her house cause you have to finish another for some stranger, Dont go go vacation cause you need to roof a house for free, Go under a house with dead rats and spiders to redo plumbing,its nothing like these shows, A lotta people gonna go broke cause of them and a lotta people will buy houses with covered up stuff behind walls.
I felt bad for those two dudes. They sold the house after all that work only to break even or even lose. Yet last week they were back paying like 375K to try again. They must have been taught the old TRY AND TRY AGAIN thing by their parents.
Have a good day
CLiffy
Maybe they are going on the "lose a little on each sale and make on the volume" plan.
Not sure if anyone has seen the show about what a house is worth? Couple of times now, the owners have been disappointed to find out they weren't gonna walkaway with that big payday after all. These aren't flips, rather they primary residences.
As for the flip shows? Seems to me they started to show up right around the time that price increases were at their all time high. Right around the time Richard and Ginger showed up on TV, prices in my area could go up a few thousand dollars over the span of a week.
I know more than one person who made money just buying and holding fixer uppers.
I just bought a house at well under it's appraised value. Price was reduced three times. Even so, the homeowners who had only been there five years made a 70% gross profit.
Under those conditions almost any moron could make money.
But it sure does look like those days are gone.
So I gotta wonder. How long have those episodes been in the can and waiting to air? Are they last years news? were they shot before prices started coming down?
I'm betting yes.
Like someone else metioned, they only show "Potential Profit". And that leaves a thought. I'm thinking that Realtor fees and insurance or a bond (Since aftyer all this is a business venture) and associated operating costs don't make for good TV.
Two weekends ago I took my daughetr to cheerleading and was talking to one of the other dads. His wife has been watching these shows and is now scouring the newspaper and realestate web sites looking for a flip. No matter how many times he puts the numbers to paper, she just won't believe that it's not as easy as it looks on TV.
And here's my big question.
The Montelongos. Does anyone really believe they were little realestate tycoons in the making before the TV show? Or, where they two fly by night struggling clowns who were one step ahead of the Repo guy trying to pick up the leased Expedition?
And then...........................Someone realized they had two.............shall we say...............TV friendly wives?
"The Montelongos"
Great clown act, popular in 2006!
Almost everything the obnoxious and arrogant one does speaks of a scared little bully who needs someone to call him on his line of cr#p.
That they would (willingly) show the world that this is how they do buisness is astonishing.
Can you imagine doing buisness with them after seeing the show?
Buic