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View Full Version : Anyone Flip a house?



Bob DiGiacomo
01-15-2008, 7:02 PM
My buddy and I are considering flipping a house. I am weighing the pros and cons. We both work full-time jobs, so we will be subbing some stuff out. We are looking for a house now, but haven't found one yet. Both of us have worked in construction for several years and he has owned his own contracting company in the past. But as you know there is a lot at stake. Any ideas or suggestions would be helpful. Looking forward to your responses. Bob

Greg Funk
01-15-2008, 7:10 PM
It's easy to make money flipping a house in a rising market. In a falling market your risk is higher and you need to turn it around much faster.

Greg

Randy Cohen
01-15-2008, 7:33 PM
I agree with Greg. The housing slump is going to continue for a while.

Bob DiGiacomo
01-15-2008, 7:38 PM
We are trying for the first time home buyer. The houses priced at less then $200,000 seem to be selling around us. We are going to try to find a house that will sell for around 180,000.

Jeff Wright
01-15-2008, 7:51 PM
1. Begin with the end in mind . . . what is your exit strategy? Sell it to an owner-user? Investor? What is the availability of mortgage money for your targeted type of buyer?
2. Beware of partnerships! A great way to lose a good friend, or worse.
3. Look closely at how to hold ownership . . . land trust, LLC, ??
4. Don't create unrealistic expectations about how much you know simply because you and/or your buddy has some contracting experience.
5. Don't wing it. Create a detailed plan of renovations (with accurate estimates of cost), and allow for surprises in time lines and budgets.
6. Avoid the get rich quick gurus who charge thousands for their classes. The great teachers only charge a couple hundred dollars (John Schaub, Jack Miller, Peter Fortunato, Dyches Boddiford to name a few good ones).

Until a year or so ago, I was a private money lender to rehabbers. There are a lot of dreamers, and few real doers. Today's devasted market is far more challenging.

Otherwise, have a lot of fun and good luck!

Jim Becker
01-15-2008, 7:52 PM
As long as you feel you could really move it in your local market, it's worth considering, but the risk is quite high right now. And first time buyers are facing a very tight money situation with lenders...they have got to have stellar credit.

Scott Shepherd
01-15-2008, 8:09 PM
I flipped about 10 or 12 of them, just the work, someone else supplied and made all the real money, but I did get paid and I did watch them have houses that sat for almost a year. Everything they bought and I flipped went quick and made them good money. That was until 2005. The market didn't crash here, it just got really soft and it was sad to watch nice houses just sit idle. Not even an offer on them for months and months.

In the end, they ended up renting two of them and drastically cutting the price on two more just to get rid of them. They made no money on those two, and still have 2 rentals.

In my experience, plan to spend about 35-50% more than you thought you would. Do your homework in buying the house. Can't tell you how many times we found "surprises" under the house, in the attic, or within the walls. #1 issue we found to look for was wood rot and mold. If you don't find those things until you sign the papers, then you've got a problem on your hands. Either pay a darn good inspector or spend time under the house yourself with a flashlight and look at every single joist and everything else under there (pipes, HVAC, etc.)

And you can bet money that any time you pull something up or down, there will be something unexpected behind it. Unexpected almost always means $$$. If you pull up a floor to put tile down, you'll find a rotten sheet of plywood. Pull that up and you'll find a damaged joist. It just never ends. After a while you learn what to look for up front and it makes it easy, but it's certainly not as easy as they make it look on tv.

Best of luck, but be careful. There's almost always a reason the houses sell so cheap. Most of the time it's because they won't pass inspections for the loan, so they need someone with good credit or cash to be able to buy it. If they won't pass the inspection for the loans, then there is obviously something wrong with it (which is what you want in some cases), but make sure you can fix what's wrong.

Also, if you have to start subbing work out, you'll watch your crisis level go through the roof. It's very difficult to sub out a lot of the work and still make a profit. I did it all myself, but if we had to sub out the work, they wouldn't have made a fraction of what they thought they should make.

John Newell
01-15-2008, 9:08 PM
but the risk is quite high right now


That's an understatement. When Citicorp and Merrill Lynch are counting up losses in billions, and your business plan depends on credit access and housing market prices, you will have to be both very smart and very lucky to avoid losing a lot of money. Measure twice, cut once...

Greg Funk
01-15-2008, 9:17 PM
On a positive note it should be easier to get sub-trades these days and if you can make money now during tough times you will do very well once the economy turns around.

Joe Pelonio
01-15-2008, 9:35 PM
Wow, I'd think this is the worst time in ages to try to flip a house. Our economy and housing market are still strong compared to much of the country, yet a person could see the value drop below the potential selling price before they even finish the work. Maybe if you do a LOT of the work yourself. A couple of examples, we refinanced 3 years ago and our appraisal was $674k. Now based on recent sales it's worth about $560. Our first house in the SF bay area, CA sold about 2 years ago (my sister in law lives down the street) for $680k (old 2br 1 ba) and now is worth $472k. That's quite a drop.

Eddie Watkins
01-16-2008, 2:41 AM
Where you live makes a huge difference on the direction you take. I watch some of the Tv shows where people are paying $500K for a 1500 SF 3bedroom house then spend $50,000 on repairs and ask $750,000 for it, I can buy similar houses for under $100,000, average fixup costs are usually about $15,000 (labor included) and I might be able to sell it for $130,000.. Since I don't know where you live my experiences may be totally different from yours. LOML and I have been renovating houses for since the late 80's. I have never lost money on one but I have sure worked cheap on occasion.
The first house I bought I borrowed money against the property to do, The bank made as much as I did. By the time you pay two closing costs (buying when you buy and selling when you sell) and interest for several months the financing costs can really eat into profits. I have used profits from previous houses so I can finance the houses myself. I also have a line of credit on my own "paid for" home just to be sure I don't run out of money before I am done. You will also need home insurance if it is financed whereas it becomes optional if you are using your own money. I recommend you insure it while it is being worked on. In my area you need to do absolutely as much of the work as possible to make a profit. Part of your profit is your labor. Watch out for the major cost areas: the roof, HVAC system, foundation, sewer lines. Electrical work is very expensive as well so I minimize remodeling that requires an electrician. I also replace windows unless they are already double pane. It will help the house sell better here. Unlike the people on TV, I try to do as little moving of walls as possible. That gets into major work and expense.
I have not had much luck trying to buy repossessed or soon-to-be repossessed houses as the mortgage company will generally only negotiate to a point where an individual would have to want to live in the house to even break even. You could probably buy a comparable house already in living condition as cheap as you could buy from them and buy the materials to fix it. They allow no room for labor costs. I look for houses being sold out of estates or houses for sale that have not been maintained very well where the owner doesn't want to or can't afford to fix it before they move.
I hope this is helpful.

Eddie

Rich Engelhardt
01-16-2008, 7:19 AM
Hello,
My wife and I have been in it since 2002 - but in somewhat of a different way. Our present purchases area all geared towards rentals mainly because it's presently a "buyers market" & our rental strategy is based on "long term".
Within the next 4~5 years, I plan to shift away from buying rental property to buying investment property(ies).

It can be extremely lucrative, but the pitfalls are plenty and mostly hidden.

As an example:
This is an open forum - open to the public.
In your two posts, I picked up 1 possible license violation (subbing out work = you're the "general") and a potential housing discrimination suit ( target "first time buyers").
Again, this being an open forum, I'd prefer to not go into details.

Let's simply say that the real estate investment market is very aggressive - and all the participants are also aggressive. And I mean all of them.. buyers, sellers, agents, banks, insurance, state - local and fed - agencies...all of them.
I cannot stress that enough - you have to cross all the "t's" dot all the "i's" and have all your crossing and dotting checked and rechecked - and the plan on laying out for a fine or a suit.

All that aside. Right now is probably the best time in years for getting into it. The casual "flipper" has gone to ground (or gone under) and the "big guns" have been holstered for the moment.
Having been in construction, you can appreciate what a "slump" brings out - normally very good/very busy workers that are willing to do a job for a little less than during "better times" - the added benefit is a little better job in hopes of "word of mouth".

Also - something to keep in mind when people bring up "tough times".
Howard Hughes and Bill Gates. Two of the wealthiest people in the US, both started the road to fortune by "buying" at a time when everyone else was "selling". Hughes during the "great depression" and Gates during the post OPEC recession. (not that I fancy myself as either of them).

The way I view the nay-sayers is simply less competition ;).
I say that in a very friendly way - it's their "save now for possible better times downt he road" attitude which allows me to borrow their saved funds to invest.

Oops - edited to add:

you will have to be both very smart and very lucky to avoid losing a lot of money
That reminds me of my old friend Lonnie R. Lon was a pool player. One day he and his daughter were playing a game of 8 ball. After losing a few games, his daughter quit and said "Dad, you are sooo lucky. You always seem to have a shot you can make!". :D

Danny Heisner
01-22-2008, 2:12 AM
You can make a lot of money, even in a soft market if you get a good enough deal on the property. If you can find people that are going to be forclosed on, you can really do well. I know of a friend who bought a house for 80K that the owners were going to lose to the bank. They owed 75K. They walked away with 5K and he had a $120,000 house for $80,000. He put $15,000 into it to fix it up and sold it for close to $150,000.

The key is being patient and waiting for the right opportunity. It is quite easy to get hosed if you run in to hidden problems, so check the place out thoroughly!

Personally, if I can't do the deal without going in to debt, I ain't doin' it!

My two cents.

Danny