I have never flipped a house. Buying and fixing a distressed property requires a combination of repair skills that I do not possess. I admire professionals who do it well but I suspect that there is only so much renovation talent to go around. The present bull market in residential real estate is goading plenty of amateurs to try flipping homes. The people on the left end of the bell curve for rehabbing talent are getting in over their heads.
Cable TV shows like Property Wars and Flip That House make it all look so easy. Anyone can do this, right? Well, not really. Mastering the intricacies of a new vocation takes a lot of time and effort. Watching a TV show doesn't cut it. Even the experts have a hard time doing their jobs. One "Property Wars" dude had extremely severe business and financial problems in Arizona. Attending some overpriced coaching sessions don't cut it, either, because a lot of so-called coaches are hired for their sales ability rather than subject-matter expertise.
Real estate gurus have plenty of strategies to sell to their clients, in the hope that one will stick when the others are out of favor in the market. Rehabbers who flip houses are no different. Their niche strategies include something called "wholesaling," which has a bunch of sub-strategies like selling contracts, assigning contracts, double closes, and of course the reverse wholesale. Maybe that last one is like a reverse cowgirl position, but with more work and less fun. My Google searches on these topics reveal that they involve committing to buy properties just to assign ownership to another rehabber or investor. I wonder what the law has to say about that. Selling a property as a third party with no equity is the job of realtors. Doing a realtor's job without the appropriate licensing is legally questionable IMHO. This is why many real estate professionals engage attorneys during closing. BTW, a lot of the websites that turned up in my searches for those terms looked really shady, with little content and lots of ads.
I cringe when I hear real estate gurus promote their workshops as some kind of "summit" that only specially-qualified insiders can access. The next cringe comes when they ask attendees to join their investment team, usually through some proprietary hard money lending partnership. The pitch is that investors who don't want to do all the hard work of finding fixer-upper homes can just put their money on autopilot while the pros take it and . . . do something with it. Beginning rehabbers who give up on flipping are juicy prey for gurus' workshop pitches.
I'll bet that real estate courses from UC Berkeley Extension and other bodies are a lot more authoritative and affordable than any guru seminar on house flipping. Peer-reviewed bodies of knowledge are less likely to come with self-serving snake-oil pitches attached. I have always liked John T. Reed's real estate offerings because he cites market data and laws to support his ideas. I have yet to hear a guru's pitch that mentioned legal requirements for seller financing or bank REO purchases. They all make it sound so easy, when in fact it's hard to get things in writing when working with alternatives to conventional home purchase channels.
Aspiring real estate flippers need data before they start hunting for property to rehab. NAR's Research and Statistics shows which markets are affordable and which properties are selling. The "foreclosure discount" is a commonly accepted way to estimate the success of a buy-and-flip strategy in real estate rehabilitation. Subtracting the median foreclosure sales price from the median sales price in a region determines the foreclosure discount. The discount can be misleading because foreclosed homes may vary widely in quality from most homes. Zillow notes that comparing foreclosure resales to their estimated full fair market value makes for a more accurate foreclosure discount. The more accurate discount offers far less of an attractive gain for flippers; they will have to add even more value with a rehab effort.
I continue to wonder why any competent real-estate professional would insist that tax-advantaged retirement accounts are appropriate vehicles to hold physical property. People who think it's cool to flip houses in their IRAs need their heads examined. The IRS has a ton of restrictions governing how money in an IRA can be used for real property. Working with those restrictions is a lot less efficient than rolling real estate gains into a tax-deferred 1031 exchange. It's also a lot cheaper to buy property through tax liens than buying the property outright. Conserving capital that way eliminates the need to find hard money lenders or questionable business partners.
The unanticipated costs of attorney fees, title searches, high-interest loans, and miscellaneous project expenses will chip away at the huge gains flippers thought they would make. The US housing market crash after 2006 should have taught Americans not to play games with their homes. That sad era should have humbled those who buy more house than they can afford, lie to obtain financing, use their home equity as an ATM machine, or flip homes like they're playing in casinos. The sad part now is that the Federal Reserve's QE and ZIRP have brought back all of these phenomena. Borrowing cheaply to flip quickly is in vogue once again. I'll watch the frenzy from the sidelines while amateurs lose their shirts, and my cash will be ready when San Francisco levies its tax liens.
Cable TV shows like Property Wars and Flip That House make it all look so easy. Anyone can do this, right? Well, not really. Mastering the intricacies of a new vocation takes a lot of time and effort. Watching a TV show doesn't cut it. Even the experts have a hard time doing their jobs. One "Property Wars" dude had extremely severe business and financial problems in Arizona. Attending some overpriced coaching sessions don't cut it, either, because a lot of so-called coaches are hired for their sales ability rather than subject-matter expertise.
Real estate gurus have plenty of strategies to sell to their clients, in the hope that one will stick when the others are out of favor in the market. Rehabbers who flip houses are no different. Their niche strategies include something called "wholesaling," which has a bunch of sub-strategies like selling contracts, assigning contracts, double closes, and of course the reverse wholesale. Maybe that last one is like a reverse cowgirl position, but with more work and less fun. My Google searches on these topics reveal that they involve committing to buy properties just to assign ownership to another rehabber or investor. I wonder what the law has to say about that. Selling a property as a third party with no equity is the job of realtors. Doing a realtor's job without the appropriate licensing is legally questionable IMHO. This is why many real estate professionals engage attorneys during closing. BTW, a lot of the websites that turned up in my searches for those terms looked really shady, with little content and lots of ads.
I cringe when I hear real estate gurus promote their workshops as some kind of "summit" that only specially-qualified insiders can access. The next cringe comes when they ask attendees to join their investment team, usually through some proprietary hard money lending partnership. The pitch is that investors who don't want to do all the hard work of finding fixer-upper homes can just put their money on autopilot while the pros take it and . . . do something with it. Beginning rehabbers who give up on flipping are juicy prey for gurus' workshop pitches.
I'll bet that real estate courses from UC Berkeley Extension and other bodies are a lot more authoritative and affordable than any guru seminar on house flipping. Peer-reviewed bodies of knowledge are less likely to come with self-serving snake-oil pitches attached. I have always liked John T. Reed's real estate offerings because he cites market data and laws to support his ideas. I have yet to hear a guru's pitch that mentioned legal requirements for seller financing or bank REO purchases. They all make it sound so easy, when in fact it's hard to get things in writing when working with alternatives to conventional home purchase channels.
Aspiring real estate flippers need data before they start hunting for property to rehab. NAR's Research and Statistics shows which markets are affordable and which properties are selling. The "foreclosure discount" is a commonly accepted way to estimate the success of a buy-and-flip strategy in real estate rehabilitation. Subtracting the median foreclosure sales price from the median sales price in a region determines the foreclosure discount. The discount can be misleading because foreclosed homes may vary widely in quality from most homes. Zillow notes that comparing foreclosure resales to their estimated full fair market value makes for a more accurate foreclosure discount. The more accurate discount offers far less of an attractive gain for flippers; they will have to add even more value with a rehab effort.
I continue to wonder why any competent real-estate professional would insist that tax-advantaged retirement accounts are appropriate vehicles to hold physical property. People who think it's cool to flip houses in their IRAs need their heads examined. The IRS has a ton of restrictions governing how money in an IRA can be used for real property. Working with those restrictions is a lot less efficient than rolling real estate gains into a tax-deferred 1031 exchange. It's also a lot cheaper to buy property through tax liens than buying the property outright. Conserving capital that way eliminates the need to find hard money lenders or questionable business partners.
The unanticipated costs of attorney fees, title searches, high-interest loans, and miscellaneous project expenses will chip away at the huge gains flippers thought they would make. The US housing market crash after 2006 should have taught Americans not to play games with their homes. That sad era should have humbled those who buy more house than they can afford, lie to obtain financing, use their home equity as an ATM machine, or flip homes like they're playing in casinos. The sad part now is that the Federal Reserve's QE and ZIRP have brought back all of these phenomena. Borrowing cheaply to flip quickly is in vogue once again. I'll watch the frenzy from the sidelines while amateurs lose their shirts, and my cash will be ready when San Francisco levies its tax liens.
