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Cindi Hagley, Real Estate Pro in San Ramon, CA

House Flipping?

Asked by Cindi Hagley, San Ramon, CA Sun Sep 2, 2007

I'm seeing incredible deals on the market right now, and my personal investment strategy has always been accumulation. However, I keep hearing stories of folks buiying homes, putting in $25k or so, and turning $50,000 plus profits. I am intrigued by this and I want to give it a try. The issue is, neither myself or my partner are "handy." as far as construction or repairs. I have a pretty good idea of what things costs - but how can I be sure I am not getting ripped off by any trade that I hire?

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I'm going to buck the trend here. While you certainly must take great care in ascertaining value in a down market, there is absolutely no reason that property cannot be flipped for profit. As an agent, you know value better than anyone (sorry appraisers, this includes you too). You will be working with thinner margins, but as long as you hold out for an exceptional value (you make your money on the purchase), budget for more remodeling and holding costs than you really need, and know your target price prior to moving forward, you can have success. The key is operating within parameters that allow you to put the finished product back on the market slightly underpriced. This is not the time for mom & pop flippers, but industry insiders should be quite suited to identifying value in this tough market. There is a lot of competition out there, but there is always a market for a rennovated house at a great price. If it doesn't pencil immediately, work the figures to determine whether you can rent the home out for a year or two without bleeding too much. Buy when the market is conducive to getting a great value, remodel and sell when the market starts heading in the other direction again.
4 votes Thank Flag Link Sun Sep 2, 2007
Ok... This is a tough business and requires a tough approach to trades. My team here has flipped 50 houses in the last 3 years and none of them go perfectly. Everyone has an opinion on how to flip... Here's what I see the issue of flipping really is... (From my blog)
1. Paying too much for the property - Just because you want it, doesn’t mean that it’s going to make a profit. Leave your ego behind and put that wallet in check.

2. Do what you know and have some control over - You are going to be the boss, the Jefe. Make sure you feel good about giving clear and specific orders. Be ready to deal with people who are going to promise the world. They need to be able to duplicate your thoughts. Ask a lot of questions and try to avoid people who don’t like to help.

3. You want to build a flip house the way you would want it to be if you lived there. The only time you should build for you is when you are going to live in it for two years. If that’s not the case, then go neutral, nice, trendy and cute. If you don’t understand what that is, then turn on the HGTV and start watching.

4. Not hiring a realtor to sell it when you are done. You do this because it’s the safest way to make sure it sells for the highest dollar and so that have time to find the next sweet deal.

5. Failure to understand how much things are selling for in the neighborhood – If you had a realtor that was any good, you’d know this.

6. Spending too much on the repairs to the property – In this flip game, every contractor wants to up sell you. They are going to say “it’s cheaper if you do it now”, etc. Well they’re right, but with the wrong intentions. They don’t understand that you have to leave something for the new buyers to improve and call it home. They also don’t understand that you have to get out of the property as soon as humanly possible. Know when to stop and when to say no.

7. Focusing “everywhere” instead of where you “know” – Specialize. Be the King or Queen of something you know better than most. That way, you never have to know if you are paying to much or how much is enough to spend to get the price you want.

8. Choosing a realtor that doesn’t specialize in flipping properties – It probably doesn’t surprise you that 20% of all realtors do 80% of the business. Know who they are.

9. Focusing on Foreclosures – I personally think everyone who drops this “f – word” instantly goes to the AFC category. Why? Because everyone wants to get a deal and when they see that f-word, it drives a mad selling frenzy. There are several “buy foreclosures” TV ads going so why would you think that getting 20-30 people bidding on the same property is going to get you a great deal. True story – Guy with 750 credit score dropped 15 offers in a row with 20% down for government foreclosures at above market price. Each one had more than 5 offers on the property the first day it was on the market. All they did was drive up the price which was at market value to begin with. To make matters worse, depending on the bank owner, they won’t give you a response for a month whether you get it or not. His f-word record 0-15. He now uses another Perry approved system. Perry’s rule - The only way you make money in foreclosures is to contact the bank directly and become best friends with the REO manager. Then you get them before they see the market. I have at least 5 other ways to make better use of your time and get better deals. We’ll save that for another time.


10. Failure to have a system with a definitive exit strategy – You must have a best case and worse case scenario when doing a flip. Not just how much, but what happens if it doesn’t sell. My recommendation is to assume that it won’t sell for the highest price until next year so it better cash flow while it’s rented. Others have a “dump it” price and a “best case price”. If you have one of those strategies, then make sure your realtor has an in house rental department and a handful (I mean 50-60) of investors waiting to buy it at the “dump it” price. Also, keep consistent with colors, tile selections and finish outs. That way you have some history of success and know what is selling. You also have the added benefit of the “system” of a standard flip build out when you think like this. Your contractors will always know what color is on the walls and the tile on the floor. It’s a good way for saving money as the next house can use your leftovers from the prior project.
5 votes Thank Flag Link Wed Sep 5, 2007
I don't think this is the best time to be flipping property now with much uncertainty in the market price. You may end up holding the property longer than anticipated with high carrying cost. Yes, there are great buys now but how is the demand. Also, contractor costs usually come in higher than anticipated unless you are doing the work yourself.
2 votes Thank Flag Link Thu Sep 6, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
Contact
Everyone here has given you flipping advice but the answer to your question is here. Your best bet would be to ask friends or flippers in the area who they use. The reference I provided below is a pay site, but it is for reputable contractors with a proven track record for quality and reliability. The contractors on this site have been referred by previous customers and screened for you. I currently have a client who is using the site for his first flip here in Austin and he swears by it!
Web Reference: http://www.angieslist.com
1 vote Thank Flag Link Mon Sep 10, 2007
Your best bet with regardings to precluding having a tradesperson ripping you off is most certainly getting several estimates for any given job. Furthermore, you can ask the tradesperson for references and actually visit his/her prior clients and discuss with them their experiences with the tradesperson including the pricing for the job done. I am a real estate investor in addition to my real estate practice and almost always get several quotes/bids/offers for jobs before hiring a tradesperson. The only real exception would be when I have been dealing with a personal friend whom I totally trust. Good luck and feel free to contact me if you have any more questions regarding rehabilitating properties and flipping houses! Best, Mark
1 vote Thank Flag Link Wed Sep 5, 2007
Investors and flippers at the luxury and high end have cut back. These deals carry bigger risks and require greater carrying costs. I have seen an uptick in investors and flippers in the entry level housing price points. These properties represent one of the best potential markets now. First time homebuyers with sufficent down and good credit don't have a lot of extra $$ to spend fixing a place up. They need and want move in condition. These are the bread and butter, moderate margin properties that represent an investment w/ less risk. Our luxury flippers say the carrying costs are too great and they will not take on the expenses associated w/ carrying a property for several months since the buyers are fewer and selective. The entry level housing investor can shine above the competiton and find a buyer reasonably quickly by being better than the competitive offereings.
1 vote Thank Flag Link Wed Sep 5, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
The only flipping I would try right now would be here: http://www.3form.net/mansion_impossible/
1 vote Thank Flag Link Sun Sep 2, 2007
Maureen Fran…, Real Estate Pro in Birmingham, MI
MVP'08
Contact
Cindi, my daughter is an agent and has flipped 2 properties. We have all learned a LOT from the process. Most people make nothing off the first flip. We didn't believe that UNTIL it happened to her! We have the 2nd one on the market now. On this one she stands to make a very nice profit. Before you decide one way or the other please read a great book called FIND IT, FIX IT, FLIP IT. If you can use that as a guideline you will do well.

Yes, you can still make money off a flip in this market. Being a Realtor you are already ahead of the game. Just do ALL your homework first, find a great team to work for you that is reliable.

All the best!
1 vote Thank Flag Link Sun Sep 2, 2007
I don't know if now is the time to be flipping property. That market has passed. If you were going to do so you should always work with people that have been recommended by someone you know and trust. To find out more about the San Ramon market, contact John Harper at (925) 895-2964.
1 vote Thank Flag Link Sun Sep 2, 2007
For an industry insider, a good contractor should always be available. I don't know too many successful agents who don't have a rolodex (how prehistoric is that term?) of go-to contractors. While many of my guys get booked up because they are very good, they always make time for me. Knowing how much business I send their way, they know better than to be too busy when I need them personally or for clients. I woulod suspect that the same holds true for the rest of the agents on the boards.
0 votes Thank Flag Link Tue Sep 11, 2007
Paul and Cindi:
The problem with contractors and Angie's list in regards to flipping is "time is money". Any contractor really good is not going to be available or affordable. I had an expensive retail contractor come give me an estimate before we even had a valid offer to buy contract on the home. This gave me a worst case scenario. After we had a contract, I had three building industry contractor recommendations come look. These people were good quality and good prices and therefore busy. It was almost two months before I could even get estimates from them. After a month of getting nervous, I contacted three Angie's list contractors. If they were good, I would have to wait 3 months just for them to start the job. I ended up having to start on my own, getting some subcontractors working until I finished round three of interviewing General Contractors. Some of your best quality workers will just disappear sometimes because someone offered them more money. It is ugly and stressful. I like the online video game a lot.
Ruth
0 votes Thank Flag Link Tue Sep 11, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Pam makes a good point, "unless you are doing the work yourself". Because of the great prices, if you can afford to hold the property, you can work on it as a side job. But I guess then it wouldn't be "flipping" it would simply be an investment.
Ruth
0 votes Thank Flag Link Fri Sep 7, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Cindi, I don't think right now is the right time for flipping properties. With all of the short sales, bank owned, etc. coming on the market, there are a lot of "deals" out there for people to buy. I think that if you can afford to buy it, then keep it you might be better off. You could do some basic "fixing", then put it on the market, both for sale and for rent and see what happens there.

As far as tradesmen, whenever I don't personally have someone I turst I go to other agents in my office to see who they can recommend, and I always end up with reputable people.

Patti Phillips
800-680-9133
0 votes Thank Flag Link Sun Sep 2, 2007
Cindy:
I had to close down my children's party business to babysit the contractors rehabbing our investment property. I was lucky to KNOW enough from doing the work myself in previous homes to correct problems before and after they occurred. I was also lucky the contractors showed up to work and completed the job. With the knowledge I have, I would have made more money as an agent earning commissions on the transactions than on the "profit" from doing the work.

Would you spend months working with a client not knowing if they were really going to buy or sell and whether you would get paid? As the saying goes, "it's a case by case basis" and "the greater the profit, the greater the risk."

Ruth
0 votes Thank Flag Link Sun Sep 2, 2007
Ruthless, Other/Just Looking in 60558
MVP'08
Use services that are licensed and bonded and come recommended.
0 votes Thank Flag Link Sun Sep 2, 2007
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