Every month or so, I see a post here on WSO asking about the pros and cons of flipping houses. Some view it as easy money and they have the excel spreadsheet to prove it! However, in practice flipping houses isn't quite so simple. On occasion, you'll see a foreclosure that you can easily turn around for a quick profit and sometimes, it really is as easy as it sounds. However, these are the exceptions. Most foreclosures and other low priced houses have a whole slew of issues with them that you'll have to address prior to putting them on the market. It should come as no surprise that the person who couldn't make their mortgage payment didn't keep their house up to snuff. It's here where things get tricky.
If You are NOT Handy
If you are not a handy person, if you don't own tools or if you can't use the tools you have, you are going to see the actual price of the foreclosure you bought skyrocket. Contractors aren't cheap. In my experience, it's wise to assume that each bathroom you need to redo will cost $10,000 and if you need to redo a kitchen, $20,000 (NYC could be substantially more). So, for a house with 2 bathrooms and a kitchen that needs to be redone, add $40,000 to the price and pray that you don't need a new roof, flooring, windows, HVAC, plumbing, electrical, structural work (e.g. moving a wall, fixing joists, etc.), or painting done, as each can easily add several thousand dollars to the total reno price.
It's not all bad news (just mostly) if you're not particularly handy. If you need to get a whole heaping load of work done, you'll get a discount on the total price. If your contractor needs to demo your place down to the studs, the work becomes much easier for the trades and you'll catch a break. But, for anyone who has seen a "home improvement" show, the final tally is still awfully high and it will still probably eat up your entire expected profit.
If You ARE Handy
Maybe you did some construction to help put yourself through college or maybe you have a family member who showed you how to do everything. If so, you might have a good shot at making some money flipping houses. Let's run through a checklist to make sure you have what you need:
Power Tools: The obvious ones like a drill (preferably with hammer action), impact driver, circular saw, angle grinder, reciprocating saw, and a brad nailer are important and, if you're handy, you probably have them already. But, if you're potentially rebuilding an entire house, you will probably need several more. I would suggest having a miter saw, table saw (if your miter saw is a slider, you can probably skip the table saw), wet saw, a hammer drill (if your drill doesn't have hammer action), and sanders (at least a detail, maybe a belt and/or orbital). There will be some overlap in utility between some tools under some circumstances, for instance your wet saw and your angle grinder if you're primarily utilizing ceramic tiles (it's much easier to deal with toilet outs with a wet saw in my opinion). I don't doubt that I'm missing some key tools here, but this is a good list if you need to rebuild a house.
Power Tool Accessories: Most of these are pretty obvious, like bits for your drill and impact driver, blades for your saws, and sand paper for your sanders. What many people forget are stands, for instance, if you have a big ass miter saw, it is probably wise to get a decent stand so you can bring it to the worksite and set it up more easily. The universe of accessories is large, so don't get sucked into buying ones you don't need, just don't forget that there are many that will make your life easier when doing this kind of work on a timetable.
Hand Tools: To rebuild a house, the hand tools you will need extend well beyond "wrenches & screwdrivers". Trowels, in particular notched trowels (1/2" & 1/4" square notch, maybe a triangular notch), are a must for tile work (including subflooring). Also, don't forget about electrical and plumbing tools like wire strippers, pipe cutters, and a blow torch. The list of hand tools that one would find useful while building a house is very long, but luckily, hand tools are relatively inexpensive and you can buy them as the need arises.
Okay, so you've got everything you need, now it's time to do some building! First thing to keep in mind is where you're located. If the neighborhood you're in is relatively inexpensive, don't install marble showers, hard wood flooring, and top-of-the line appliances. Stick with what is typical for the neighborhood. If that's cheap tile, laminate, or (shudder) vinyl flooring, that is what you should be installing. Also, remember that other materials can add up quickly. Keep your thinset loose when installing tile, buy builder grade whenever possible (e.g. vanities, cabinetry, etc.), and if you don't need a particular appliance, don't buy it.
Obviously, this is not a complete guide for rebuilding a house, merely a short primer if it is something you're considering. Let me know if you have any questions, I'm not the top DIY expert in the world, but I've done most of this kind of work and can give you an idea of what's involved.
If You are Handy AND You Work Full-Time in Finance
See "If You are NOT Handy".
Conclusion
Flipping houses can be very lucrative but requires an enormous amount of work. Remember, flipping is the most lucrative for those who have made it their business. So, if you decide to get into it, realize that you're taking on a whole new job.
100% agree, +1. but one thing people fail to think about is the liquidity premium and the opportunity cost of your time. most people in IB have better uses of their time economically speaking than redoing their home (at least once you're above analyst level, in which case you're probably renting and won't be renovating anyway)
thanks, loved this post. It does seem like it would be fun, but likely a major headache and frustrating at many points along the way...
Flipping houses is easiest if you are A street smart and B not handy. Why? Flipping is a business, in business you hire people that can do things cheaper than you can do them. I would rather make 10k on a flip and get it done in 30 day than make 30K and get it done in 6 months. It is a volume business, with the exception of those true restoration projects that net on average of 100k plus per flip.
When the 'flipping houses' chatter gets loud again, I will start getting nervous.
http://www.amazon.com/FLIP-Find-Sell-Houses-Profit/dp/0071486100
I bought that book and it all seems like common sense. I stopped reading when it went into side stories about the characters in the book and how flipping houses improved their marriage, among other useless information. Anyone know any decent reads out there on the subject, or is this a strictly learn by experience type of business?
This reminds me of an article i saw in msn money that said to take equity out of your home to invest in stocks
@heister - The choice is rarely, "have someone do it and make 10k in 30 days", or "you do it in 6 months and make 30k". The minute you bring in a GC to do everything a house needs (and some foreclosures are horrifying - you don't often get an inspection) you're almost certainly in the red no matter how fast they finish the job. Labor is a large percentage of the total cost of getting work done on a house (>50% in my experience). However, you are correct that speed is very important; you don't want to be sitting on a flip for too much longer than 90 days. If it takes you 6 months to finish the work, you shouldn't have gotten into it in the first place.
You are projecting expenses of hiring a GC to what I said. Hiring people to do the work for you does not mean you have to go through all of the hoopla of hiring out a GC and he in turns hires all of the SC that do the work. You go to home depot and hire a hand full of day laborers and you tell them what to do. Not really that hard.
I tried this and it took a year of my time to finish on top of work. My neighbors hired a contractor and did a much better job than I did at a much faster pace. I would probably pass on doing the work yourself if you're an analyst.
@heister - Yes, you're right, you can skip the GC hoopla and get the subs yourself, but you're in for a surprise if you think the typical day laborer can do any and all of the work required (nevermind doing it unsupervised). Skipping only the GC - not a material % of total cost - and getting all of the trades in there yourself will still put you in the red. Plus, you have to have the knowledge base to act as GC which, definitely requires some handiness.
Here's an example, you buy a foreclosure and it's in rotten shape, you know plenty is wrong, but you have to get down to the studs to see the actual problems. You can absolutely head down to the local home depot, pick up 8 guys, pay them $50 each and get all your demo done in a day for $500 (always buy lunch). Now, you see you need to rewire, fix some plumbing issues, then relay flooring and put sheetrock back up. You could probably get the same guys to install the subflooring and sheetrock assuming you can show them how you want it done, but you almost certainly won't find a guy who can rewire and fix piping without a good amount of supervision/management. In other words, if you go the route of hiring day laborers, you still have to be able to do the work yourself.
Think about it like this, day laborers are banking analysts and you are their senior banker. If you have no idea how banking works, it doesn't matter how many analysts you have, nothing is going to get done right, if at all. Kind of an extreme example, banking is more complicated than construction, but you still have to know how it works if you want to be successful.
You must have some shitty day laborers in your area. Around here they know what they are doing. Sure you have to have a licensed plumber/electrician/etc do some of the required work. But in reality plumbing and electrical work isn't hard to do in any way.
my experience was similar to swims - I hired a few laborers like you mentioned but they all basically sucked and as mike said, needed a lot of supervision. I went through a couple of them because they are usually more concerned about getting something done fast without concern for quality (so they get the next deal). In the end a GC is more efficient and much less risk/hassle.
Another thing that hasn't been mentioned is housing inspections - some areas force you to stop working for 2-weeks until an inspector shows up and OKs you for the next phase. Then you have to repeat that process several times. In my area (big city), i've seen renovations go on for up to 2 years because of this.
Of course! Carlos and Sanchez at $7.00 an hour are super driven workers, self guided and real business leader who know exactly what to do. You told them to repaint the walls, they will always remind you to put the primer first; they'll even start sending the surface without you telling them anything! Heister you have no idea what you are talking about, cheap workers at home depot are cheap for a reason and need supervision. It takes time! We are all lazy fucks, and as long as we are paid we don't care. If you are not on their asses telling them what to do they'll go smoke a fag every 10 minutes.
I worked in construction throughout high school and college - you ALWAYS have to watch. Go ahead and try out a project without supervising the guys you'll see what happens...
I've been working 6+ years now in S&T, and I invest in flats in London. I have experience in building, and I guarantee you that when I buy my BTL they are all in good condition (except cosmetic, some Pols can do it in a weekend on the cheap. For rentals as long as it looks decent when you rent all is ok); I have no fucking time to supervise some structural work, or some foreclosed water damaged property. Boiler, appliances, BATHROOM (Amen mike, GBP 12K here in London) - that shit is EXPENSIVE! Just had to replace a boiler recently... Let's not forget taxes, lawyers, real estate agents, escrow, brokers etc... Oh did I mention the taxes that were unpaid on the property??
Flipping is a fool's game if you are not going to invest time and don't have the experience. Loved your post Mike - absolutely spot on.
Only work I've done since I have started working in banking is in my own flat, and I don't let some worker unsupervised fucking it up. I take the time off from work for it, I have a good worker I found to fix my flats at 10 quid an hour; and I supervise the fuck out of him and we do it all together. EVEN if the guy has 40 years of experience. He will still do some sort of spaghetti with the wires and connect the washing machine exhaust into your sink... You know why heister? Because he does not give a fuck, and I can't blame him for that!
I just don't like that flipping houses are so speculative. Not that it's impossible to predict real estate prices, but unless I was uber rich, if I was investing all that capital in to a big bet, rather it be in a business than a house
Why not save yourself the hassle and just get it appraised and inspected? Maybe pick out 2-3 houses you are serious about buying, shell out the $1000-2000 it would take to get them each appraised and inspected and choose the one with the highest NPV? Consider it a sunk cost and move on.
Time. Lots of these potential flips go to cash buyers in a few days time. You have to be ready to jump on them immediately.
Forclosure sales have stipulations that the property is sold "as-is".
Getting one of these in contract can be really difficult. The fix and flips have largely dried up. If someone is doing them, they are all cash and usually have an in with the seller.
It's really important to make sure the margins give you breathing room for extra costs
You guys are spot on with your experiences. By the way, I would like to learn more on fix & flip and wonder if you guys have any books or websites to recommend? Thanks in adv!
biggerpockets.com
Is flipping houses a good investment idea? (Originally Posted: 04/17/2014)
I've read multiple articles stating that the average return of investment for flipped houses is in the range of 50%-58%, which is pretty amazing.
Could I make serious dough by doubling my real estates? Let's say I have $50k cash. I use that and buy one house. Total repairs, real estate commission, etc. is $9,000. House sells for $110,000 and I get about $101,000 in return. Then I use that $101,000 and buy two houses at $50k each. Using the same principle as before, I now have a total of about $202,000.
Does it really work this way?
i don't know if it's that easy
No experience in real estate flipping, but 9k for repairs on a 50k home (assuming this is most likely a foreclosure) Seems a little light, but again I have no experience in this just have seen what some of these homes look like
Yes, please put everything you have into these houses.
"Where we're going, we don't need liquidty."
Same person asking about becoming a PM. You seem like the person that becomes fascinated with a random idea and gets excited about it for a week then moves onto the next thing. You need to do a lot more research about both your threads.
Yes - if you are handy and willing to live in the fixer uppers you buy for 2 years at a time, it can be a good way to make money due to the home sale exemption
OP, we should go into business together. I've been reading up on some penny stocks that return 1000x; with our combined resources and intelligence, we could rule the world.
Regardless of whether you think I'm stupid or not, I'm only looking for advice. That would be nice instead of insulting my intelligence
What intelligence...
I have a friend that personally flips houses with his dad. That said, I think your scenario is pretty tight. Generally, the larger the price tag on an asset purchase the larger margin of error you have to prepare for. Fixer uppers are definitely the most lucrative investment in single-family real estate investing, in my opinion.
However, for the past two years large private equity shops and other businesses with a solid capital backing have seen the same opportunity you have and snatched up plenty of the unique opportunities to crush it flipping homes. So your competition may not be the guy down the street but the corporate office. I plan to invest in real estate myself, but will likely begin investing with a group of friends to limit exposure in case of hard times. That's probably the best way to begin.
To summarize a few considerations before investing: - Timing (buy/hold/sell) - Location - Tenants - Knowledge/Experience of contractor (you can easily get ripped-off) - All-in expected cost + % margin of error - Competition
Yes it's possible to make good money flipping houses, but it's not as easy as you make it sound. $9k is surely too light for rehabbing a $50k house and expect to flip it for $110k (obviously there's exceptions, but in general). You're also forgetting holding costs like property taxes, insurance, getting building permits, if you need any financing, the interest on those loans. Also, are you handy? Or do you need to pay for the labor? What's your background in construction? Can you somewhat accurately estimate the cost of the repairs needed by walking through the house? Also make sure to include at least a 10% contingency in your budget because you will go over budget. Then you have 6% (usually) realtor commissions to pay on the sale unless you sell it yourself.
Most people who flip leave a large margin of error between the total cost and expected after-repair value. Most flippers would prefer to buy + repairs at 65-75% ARV and sell at 85-90%, so even though they aren't getting top dollar, they are selling quickly and aren't eating into profits by coughing up holding costs for months. So in your $110k ARV example, a flipper would be happy if they could buy it at $50k, have repairs/costs of $25k for total cash in of 68% ARV. If they sold for $95k (86% ARV), they'd realize a $20k profit, or 27% on their investment (unlevered). That might even be optimistic.
As with any investment, you make money on the purchase price. So yes, it can be done, but you don't just find 100 of these deals every day. People might analyze 100+ properties before buying one with enough potential to pursue. That being said, I think it has a lot of potential and I'm currently searching for a flip (already rehabbed my current duplex, cash-out refi'd, and I have my broker's license which helps keep some costs down).
I think the only viable way to do this would be to look at foreclosure homes. While I believe you can fix stuff for little money you will either have to sacrifice quality or do a lot yourself. Why are you so keen on flipping? You can just buy it with a small equity investment and get the difference from the bank. Have tenants move in and let rent pay if principal and interest. Or you can do what a lot of people have started doing: instead of having a single tenant people have refurbished apartments or even houses out of foreclosure turned all the rooms into bedrooms and rent the rooms out on Airbnb. This obviously depends highly on location, but in London for example you can find people renting rooms for 30 gbp a night in a 5 bedroom apartment with 1 bathroom and these places are often booked out months on end. If you do the math on these you can easily generate 4.500gbp a month in rent income and pay off mortgages etc.
Again before people start going crazy, I did t say it's easy or wtv all I'm saying is that it's being done and it has been done in the past.
Instead of flipping, a couple of other viable investment options with real estate is actually rental; vacation rental. A few articles have highlighted some investors have bought houses in prime tourist locations, spruced it up and rented them out on AirBnB or Vacationrentals.com
I find this method very viable and will investigate further when I have more dry powder on hand.
http://gizmodo.com/i-bought-an-apartment-just-to-rent-it-out-on-airbnb-…
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Yes it works this way but it will take a long time. You might see the second change during your 90's if you are 35 and above today.
Flake probably enjoys getting a rise out of people. He probably doesn't feel very good about himself at baseline and uses people's reactions to boost his very low self esteem.
Ignore his immature comments.
You should check if Obamacare will cover a stick removal from your ass.
www.healthcare.gov
Must have struck a chord.
I've heard real estate is very location specific. Low interest rates probably helps
omg LOLLLLLL. you're hilarious. SB'd for your wit.
You wouldn't spend all $50k to buy the house. You would buy it with a loan and use some of the $$ for a downpayment. The rest of the cash can be free to fix up the home. The goal of a flipper is to do this as quickly as possible to move on to the next house.
Successful flippers end up working on several houses at a time. Usually they do not attempt to do the work themselves because they aren't licensed professionals and it would take them much longer to get out of the house and move on.
It is very risky as homes are not very liquid, however, if you get stuck you could always try and rent the home.
my advice is to go right full steam ahead, borrow more to flip more,sell a kidney if you have to, you can't lose
Solid returns as aforementioned are possible, but you would be wise to find an experienced partner or otherwise perform sufficient research before beginning. Returns are largely market dependent (both re: national RE cyclicality and regional pricing generally). Foreclosures often provide the best deal, but often require partly sight-unseen purchases which must be paid in cash. The OP in first link (below) ostensibly did quite well with the flipping/foreclosure strategy. You may also want to check other RE specific blogs for more feedback. The second link should get you started.
http://www.wallstreetoasis.com/forums/entrepreneur-pehf
http://www.biggerpockets.com/search?utf8=%E2%9C%93&term=roi+flipping+ho…
You're a bit late to the game on this one. Yes, when the housing market was worse it was easy to pick up discounted short sales/ foreclosures and get impressive returns. Even now, finding houses worth flipping is possible but difficult. My father is an active real estate broker (Southern CA) and only comes across a solid flip every few months now. At this point, many investors are more than willing to put up cash to flip a house- it's finding the houses worth flipping that is the hard part (it usually it comes down to finding the place before it's actually listed on the market). As a reference point, I was involved in a flip that returned 20% over 4 months earlier this year and that was above average for the market I'm in (10-15% is more likely, plus you're still assuming risks buying real estate).
I recommend that you flip some burgers instead. Probably easier to start with.
From experience - My father is an residential real estate agent, and if you can land a good deal, it is worth it. What do I mean by good deal? Receive a prime location for a good house, or buy an old house at a discount... Seems fairly easy? Well, you have to know the markets, and have a good idea in terms of when to invest. It seems easy to buy low and sell high, but if it was that easy, everyone would do it... it is just as tough as any job out there. Flipping houses takes time and a great idea of how you can receive a profit on your investment.
I like the picture ;-)
I have a few clients (I'm in wealth management) who have dabbled in flipping houses, and the question I always come back to is this: how much is your time worth (down to how much you are worth per hour of labor), and how much more than that do you anticipate to get from flipping this house? In most situations, if you're doing it yourself and taking time away from a high paying position, it's going to result in a loss if you look at the opportunity cost related to taking time away from work, lost business due to that time away from work, etc.
Now, if you pay somebody to do the work for you, I don't think you have to be a civil engineer to know that most of your would-be profits are going to be eaten up by labor costs and surprise repairs. Often, houses that are super cheap are super cheap for a reason (structural damage, bad plumbing, etc.), and that reason isn't always fully reflected in the price.
Next, ask yourself how much greater of a compounded return will you make on this real estate versus in other capital markets? Compare this house flipping opportunity with various global equity markets, REITs, etc. You will need to be confident you can match the IRR of one of these alternative investments, but also get a premium for your lost liquidity. Too many people fail to account for a liquidity premium when investing in RE.
Finally, if you've considered all of this, and the numbers still come out in your favor, do it. Remember what Buffett always said: price is what you pay, value is what you get. If you can pay a low enough price for the property after accounting for all of the above relative to the value you anticipate to realize, plus having a healthy margin of safety, then it's a good investment.
A bit of a wordy way to say, it's not usually a good idea. Hope this helped.
This thread is one of the reasons I enjoy WSO so much. Actual help mixed in with high levels of snark. There have been a ton of good points made, namely liquidity pricing, looking into REITs, etc. So I will just tell you a story! A friend of mine was "retired" in the summer of 2008 before 40. He was living on a beach making money off of his vast real estate holdings. He had been a general contractor for years before finding himself in the development business. By the summer of '09 he was bankrupt! And had to start all over again because of the real estate bubble. Although now he does own the best burger joint in town. So I guess you could say that he went from one kind of flipping to the next.
No, not unless you really know what you're doing. Someone who has actual construction/remodeling expertise + decent real estate acumen might be able to do this (depending on the market trends for the area). But it's not easy money & usually involves a certain amount of sweat equity to cut costs.
I'm saying this based on my personal experience working for a company that was expanding quickly, acquiring non-residential real estate & doing tons of construction/remodeling projects. We were always under budget & on time (super rare) doing complex projects but that was due to a number of factors including the fact that the people running the projects were experts (20+ years experience) and through their connections were able to get crazy good real estate deals (plus commercial real estate allows for a set period of free rent during construction to offset lost revenue).
+1. If you do not have any experience in RE/construction, find a good contractor that you can trust. While you may want to keep costs low with the remodeling part, I would suggest that you set down a decent amount on a good contractor. You do not want to deal with a shitty contractor at all.
This is a very risky move and I would not advise on doing it unless you get a sweetheart deal (someone needs to sell ASAP) or you've done your research on the area. With today's overheated residential market and rising interest rates, it's tough to find a good deal these days. I would recommend spending the next 3-6 months researching the area and speaking with other people who flip homes for a living. You also really need to get your construction numbers down to a see since your capex will dictate your profit margin and the hold period. The last you want is to under budget and have to spend more $ that you can't afford....
too illiquid for me, but good for you if you can make it work
I interned fore a firm for the last year focused in the acquisition and flipping of foreclosed properties, and I can attest that it's not an easy business. Like BigWave said earlier, 10-15% per home is the norm and it's difficult to find a better deal than that. Generally speaking, the only way you make more is if you buy what was once a million dollar home in terrible shape, and then put in hundreds of thousands to update it. This is pretty risky as repairs can easily go over budget (I've seen this happen). Then you come to the question of how much your time is worth, like someone said earlier.
As for the process and time commitment, it starts with you buying a list from a provider like Equity Depot. You then have to sort through this list of hundreds of homes and decide which homes you are going to drive to and scout. If you're doing this in a big city, expect it to be 75-150 homes per month depending on how wide your scope is. After you take pictures of every house, you then have to comp all the homes and put an estimate on the repairs based on what you saw. This takes the most time and is the most important part of the process. After this, you go to the auction at the courthouse and hope that the bank didn't put a protective bid on a property because they want to keep it or just cancel the foreclosure altogether.
Dude you have no idea the kind of money that goes into flipping houses. First of all, the only good deals you can get are the ones where you pay all cash, as is houses that are foreclosed or short sale.. Secondly, there is a lot of transaction costs: escrow fees, taxes, agent's cut....Thirdly, renovating houses almost always costs more than you think. And the %50 number is complete bs lol
Flipping Houses (Originally Posted: 10/29/2013)
From what I've been reading it looks like the ROI is absurdly high if you do it right. Anyone have experience with this?
One of my best friends from high school has extensive experience running disaster restoration crews, so I plan on bringing him in as a partner (since no one wants to see me with a hammer). The game plan is he takes care of fixing the house/dealing with contractors and I take care of financing, dealing with brokers, lawyers, accountants, etc. He also offers me a competitive advantage when looking at properties with fire, water, or mold damage because he knows exactly what it costs to get something like that fixed and the seller is probably going to be extra motivated to get that piece of shit property off their hands.
Is this the kind of thing that can be done while I'm working a full-time finance job, or would this require a full-time commitment on my part?
No, you could definitely do it on the side/weekends. Do it. Try to get the money together, you might be surprised.
I have experience in this. Bear in mind that there are tons of pros and now public companies that do this. Odds are you might be able to squeak out a return in a rising market but that will just be market timing not your value add. The lack of competitive advantages you will have will be absurd. However, if you go into it with a risk free huge return mindset you might find yourself in a bad spot.
This. Definitely possible to do but that ROI will be a lot higher in theory than practice.
You should definitely do it. This for sure was not going on in 2006-2008
Trick is to be very very choosy. The big players have to put money to work, you don't. Having your partner be a disaster restoration guy can get you to take on the worst project to utilize your perceived advantage, which can turn into a money sink.
Also, Friday Night Lights anybody?
Friday Night Lights is all I was thinking when I clicked on this post. Unbelievably good show.
The flip market is much tougher now than it was before the crash. Can you squeak out a profit? Yes. However from the people I have spoken with in the recent months the flips have been flip to rent as opposed to flip to sale.
My opinions why it is a dangerous game:
Real estate has another leg down. According to case-shiller index, we're still above the historical average, even after the crash. Think about it, if you bought a house in 2000 it is gained 100% in those years, and was up 200% at peak. What demographic shifts caused property values to double?
Interest rates will inevitably have to rise, making houses less attractive purchases, suppressing the mkt.
It is a buyers mkt and will be for the forseable future. Developers overbuilt and excess inventory is everywhere.
Gov't eventually will need $ and stop incentive programs (tax breaks on 1st purchase)
Sentiment towards renting has improved. A lot of young professionals prefer to rent rather than get stuck in a house, especially in a mobile economy
You're playing hot potato with an illiquid asset that still isn't "cheap" by any measure. If you want money's worth you pretty much need to buy property in Detroit, hope the town recovers somewhat over the next decade, and make nice cap gains. If there is one thing to like about Detroit it is the freshwater
I hope you are joking about Detroit. Property taxes will kill any gain you will ever see in that city. The population will have to exceed its peak in the middle part of the 1900s for the supply to even be necessary. No one wants to live there.
For individuals, house flipping is basically gambling.
I've never seen Friday Night Lights. But thanks for the helpful responses thus far. From what I've been reading in the news lately and some real estate forums, they talk about 15-25% profits on a flip like it's the norm. I guess the gov isn't the only one trying to inflate the real estate market.
Edit:
http://realestate.aol.com/blog/2013/07/22/cities-house-flipping-most-pr…
Thought this was interesting. Daytona Beach has an average gross profit of 82%.
I've performed extensive analysis on flipping houses, what I have found is that the market for most major cities is so saturated with flippers that the ROI is actually low, something like 5-10%. In addition, home improvement goods prices are at all time highs. This is because many manufacturers had to shut down factories and lay people off after the 2008 crisis and, since housing began ramping back up earlier this year, a lot of the same firms have begun to reinitialize operations which leads to large upfront costs for opening these closed factories and hiring new employees.
Interesting points. 2 questions.
1) Would you say it is easy to predict which markets are best for flipping moving forward? For example, if I wanted to do this full-time and was willing to relocate to a city that is better for house flipping, is that a logical strategy? Or is the market place efficient enough to the point, where this year's best market has nothing to do with next year's best market?
2) Interesting point on home improvement goods. If home improvement costs were to return to their long-term historical norms, where do you see that 5-10% range moving to?
In New York, if you want to make money flipping houses you need to buy a one-story house and add a floor. That will cost you an extra $50k-$100k in cash.
I know several people who do this. The number one issue will be that you are not getting income out of the house for at least six months if you go through this construction process - BUT it is very profitable.
Also, if you have a basement and turn it into a legal apartment.
Note: Mostly profitable if you have contractor friends: Plumbers, HVAC, Electrician, Carpenter - the more the better. Otherwise, not much value generated.
Example: You buy a one-story for $275k (overpriced) add another floor for $75k (you don't have connects) - sell the house $400k-$425k. This requires work. So even at this low margin, you're making a decent return.
Now, if you're like one of the guys I know that flips an average of 4 or 5 houses like this a year, has his own crew, has friends that are contractors and can get what you need at supplier prices... You're making a decent living for someone who only has a high school diploma.
flipping distressed / foreclosed residential property, anyone have any experience? (Originally Posted: 10/19/2011)
Im interested in hearing how large your operation may have been, how many people you worked alongside, how you got started, and how you cut costs.
If anyone here has any experience, I'd love to hear about it. I'm looking to start some side-game, as I have more time than I anticipated outside of work.
Feel free to PM me also.
im interested as well.
too much work, wayy too much risk.......I wouldnt touch distressed prop with a ten foot pole. the only thing i would buy would be rural land or agri quality land.
im in a pretty decent residential real estate market(charlotte), so its something i'd like to try.
Alternatively, if anyone out there in Charlotte wants to put our heads together and see if we can start something, feel free to let me know. No experience in RE required, but it would be nice to speak with someone with a finance background
(provided its related to the topic)
I would not try to flip in this market, personally. Buying at a bargain and holding is one thing, but hoping to flip it is another.
The transaction/commission costs are insanely high for a flat market with limited liquidity. You won't make shit after everything is paid for AND quick maintenance is way too time consuming.
Your best bet is to invest in income properties but start small (apartments with less than 6 rooms, duplexes, etc). Decent tax breaks and there are some great deals right now, though apartments have seen large increases in prices lately.
-look into tax breaks and especially re holding companies (llc's, look into delaware for formation) since they'll reduce tax rates and profits from the sale of real estate assets can forego capital gains tax if the profits are reinvested into other real estate in a certain time frame
-flipping isn't going to work out too great right now since there's little liquidity in the market and I wouldn't bet $1000s/$100000s that liquidity will be better in 12 months. Like STorIB said you're better bet is income producing properties since you don't want to get stuck flipping a house you won't be able to sell. Smaller MFD (4-10 units) may be a good bet. You'll be surprised how involved management/maintenance is going to be though.
hire a management company!
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