Flippers - buying real estate to sell six months later nets huge profits

[flygal]

http://money.cnn.com/2005/03/14/magazine/flippers_0504/index.htm

snip

Sound tempting? Absolutely. While quick-hit real estate investing is nothing new, the confluence of new tax breaks, low interest rates and exploding prices has created a perfect storm for flipping opportunities (at least in some markets) and has made legions of instant moguls.

Problem is, the playing field is getting crowded. In Las Vegas, 7 percent of all homes sold last year had been owned for less than six months, according to DataQuick Information Systems. Nationally, 14 percent of all new mortgages these days are for second homes or investment properties, up from 8 percent in 1999, reports mortgage tracker Loan Performance.

If you've been considering putting in your application for that real estate mogul position, statistics like these should give you pause. So should the example of veteran flippers like Jeff Bliven, who, after 20-plus years in the game, says he's dropping out.

"With some of these mortgage companies, if you can fog in a mirror they'll make you a loan," says the 42-year-old resident of Newtown, Conn. "When everyone's doing it, it's time to liquidate."

[VelvetMonkeyWrench]

1. I just couldn't do it that way...

My problem is I've got a conscience.

I've been involved in a few rehabs and always wind up fixing a lot of the stuff that people won't notice - structural, electrical, plumbing and the like as well as the cosmetic stuff. Poor "business" practice I suppose, but I don't walk away feeling like I've screwed anyone or sold something that was unsafe or unsound.

In one town it got to the point where the building code people wanted permits pulled for something as trivial as a re-sheetrocking job because morons were doing all this kind of quick cosmetic stuff to 100 year old places and just re-rocking over obviously deteriorated ancient wiring.

You wouldn't believe the hacked up crap I've seen in some older places -- its pretty scary.

[ultraist]

5. They're not necessary covering up problems

Sure it happens, but that's what a buyer inspection is for.

Furthermore, if you violate disclosure laws, you are in some serious trouble. AND if you pull a permit, the city inspector, inspects it. The electric has to be inspected PRIOR to putting up the dry wall if you do major work and again, after you do the finish work or they will not issue a Certificate of Occupancy.

As far as long term appreciation, it all depends on the location. A property in the right area will be worth a lot more, in 20 years, barring any odd catastrophe, like a nuke. All of society is not going to crash. Central Park West, for instance, will NEVER have low property values. UNLESS NYC gets nuked.

The people who are going to get burned are those who stay in buying up properties for an inflated amount in bubble areas. They will be stuck with a mortgage that's worth more than the house, if they can't dump it fast enough.

[KharmaTrain]

2. The Trap Is Set...Let The Suckers Bite...

I've seen a bunch of emails like that lately...how the real estate markets in some areas are booming and you could buy and sell at a big profit, just sign on the dotted line. There's also informercials at 4am on the nosebleed cable channels with these snake-oil real estate "guru"s who promote the same crap.

What they don't the gullible sucker who buys into this ponzi scheme is how many fees they will get hit with, as well as taxes, coming and going. The property better double in six months or you're screwed.

Of course this data is from an age long since lost in this country when most people had jobs, interest rates were stable and credit was easier to get. Not quite the case now. In my neighborhood, I'm seeing a lot of for sale and for sale by owner signs on the smaller homes (the starter ones)...generally this meant a move to the bigger ones, but the many of these sale prices are well below what those properties were going for six months and a year ago. One offered "no money down" financing...like some used car. Anyone speculating in the housing market now for profit is either a fool or intrepid...most are fools.

[VelvetMonkeyWrench]

4. There are solid win situations though...

...but they don't involve this flipping nonsense.

You find a place that has some sort of severe problem ordinary flippers don't want to deal with - rotted sills, cracked bearing beams, sagging floors, etc.

It WILL require some sweat equity and dirty work to fix these kind of things, but its not rocket science either. Any fool can slap on paint, but not everyone is willing to take on a major structural project even when the cost really isn't that much, and most really aren't that expensive to fix, they just take some time and planning.

[applegrove]

3. Be careful folks. The Boomers will start selling homes and moving to

condos. And the American market is not going to be so rich as it was in the past...what with competition from the whole world that it never faced in the 1950s. So inflation may actually turn around and go into small deflation.

So be carefull and do not assume that a house bought today would be worth 5 times in 25 years.

Just be carefull! Debtors are the ones that hurt the most when real-estate goes bust.

[flygal]

6. Either condos or small towns - it's happening in Montana

People from Calif. and Seattle sell their homes for a small fortune, move to MT - esp. the college towns, and live off their wealth. Then, the locals are priced out. Bozeman is a perfect example. Teachers and other professionals are moving 30 miles away to afford a house. Salaries are still low, but housing is through the roof.

[tsuki]

7. It is happening here in FL also.

[applegrove]

8. yeah and many wealthy have a few homes... so when the kids

grow they may sell all three big houses at once.