Can you really flip a house in this market?

Asked by Julia, 94123 Wed Jan 30, 2008

I read on another post about buying investment property in the bay area, that a realtor was asking if the investor was looking for cash flow or to flip. Is it even possible to flip a house in this market? Isn't that hugely risky?

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20
Chris Word, , San Francisco, CA
Wed Jan 30, 2008
BEST ANSWER
Julia, even when this market was "booming" flipping was a bit difficult - especially if you did NO improvements or permitted modifications. And, I'm hoping the definition of a "flip" for you is the same as mine: when you buy a property sitting low in value on the market and then turn around to sell it at highest value in a short amount of time (less than 6 months) without improvements, additions or proper modifications. It's simply taking advantage of someone who wants a quick sale. In order for this mechanism to work for you, there have to be a number of buyers willing to pay your highest price for the property. A good way to find a "flip" candidate is to compare it to other properties with the similar configuration, that have recently sold for significantly more (maybe 75 - 100K more), and have been on the market for a short amount of time (indicating the neighborhood or block is highly desirable). The home itself must also be in best condition, considering that the buyer you attract will have to have the home appraised at it's loan value. So...in our current environment, this is very tough to find, very difficult to market, and buyers can balk at what your attempts might be.

It is risky to "flip" a home in this market.
1 vote
Julia, Both Buyer And Seller, 94123
Sun Feb 10, 2008
Um, yeah...John and Michael, I think I will have to take a pass on that offer. I was thinking I"d just look into buying the golden gate bridge instead....
1 vote
J R, , New York, NY
Sun Feb 10, 2008
Keep in mind the TERM Flip is really illegal, and you must be careful how you do it.
~~~~~~~~~~~~~~~~
Why is the term "flip" illegal? Certain types of flips are illegal but I'm not aware it is illegal to use the term.
1 vote
John, , Los Angeles, CA
Sun Feb 10, 2008
Julia, (and Michael)
If you decide to flip a house in this market or if you decide to work with Michael, please let me know.

I work in the entertainment industry and I will pay you to film this story. I'm not kidding. We can work out a life rights deal. As you can tell, I'm very excited because I can't make this stuff up.

Thanks!
John
1 vote
Wed Jan 30, 2008
Sounds like a pop tart to me.
Web Reference:  http://www.gregorygarver.com
1 vote
Julia, Both Buyer And Seller, 94123
Fri Feb 22, 2008
OK, I really meant this in a "can you believe that people are buying this idea?" sort of way. I'm not actually looking to do it, I just wanted to hear if I was wrong in my belief that it wouldn't be a good idea. Thanks all for confirming my take on it.
0 votes
Merre Ward, Agent, Brentwood, CA
Fri Feb 22, 2008
WOW - need I say more? If you buy a home to flip, you need to be clear on plan B. Plan B would be, can you carry the costs (cash out of hand for rehab and mopnthly payment), would the home rent out, would a tenant want to rent and have the house shown? Biggest question - are you buying it far enough under CURRENT market value, say 25% to 30% so if you had to lower the price to down and dirty to get it sold, would it sell and would you be OK with that? Have you looked at the numbers to see if the "flip" will be profitable after rehab, realtor costs, closing costs and the biggee - capital gains. The capital gains is a big issue unless of course you do a 1031 exchange. ALWAYS do the math, have plan B before you ever go in to any investment or speculation proposition.
Web Reference:  http://www.nwrei.net
0 votes
Howard Sobel, , San Francisco, CA
Tue Feb 12, 2008
Flipping, by definition is a speculation. That always carries more risk because long term allows you to ride out market squiggles.
This is a tough time for real estate and we are probably in a recession, never the best time to be taking on debt and speculating in a down market.
That said, if the property is really undervalued and you can wait for a buyer, it might be reasonable to try. Amid the doom and gloom, homes are selling. TIP: I would consider only areas where tech workers are willing to live. New employees with good jobs looking to reduce the commute to the South Bay are still viable buyers, even during tightening lending standards
0 votes
Cary Beach, Agent, Cedar Park, TX
Mon Feb 11, 2008
Web Reference:  http://www.realtor-beach.com
0 votes
Cary Beach, Agent, Cedar Park, TX
Mon Feb 11, 2008
Flipping at the closing table, is a concern, When you buy something grossly underpriced, and turn around and sell it for a huge profit in a short time.
FBI watches these things so some little old lady don't get ripped off.. You have to put some time and work into it, just to flip and short change the little old lady in a ripe off scheme is what the FBi is concerned about in the "Flipping".
But if you buy something, clean it put carpet in it, do things to improve the property then it is ok.
Web Reference:  http://www.realtor-beach.com
0 votes
California to…, Both Buyer And Seller, 23508
Sun Feb 10, 2008
YES. flip / selling / turn-over / moveing forward - who care what the term is. Tell the others to mind thier own. You paid for this investment call it what you want, you can move it.

On a positive note: We just jacked the price of a property in Sac $200k, we got more hits on it, than the REO who represented the property for the last 4 months.

Try it! move the price up 25% and see what happens. Sell it yourself.

Or give us a try!
Web Reference:  http://www.whosdoingit.com
0 votes
Mike Ackerman…, Agent, San Francisco, CA
Sun Feb 10, 2008
Julia,

Real estate is all about location, location, location. I see from you're zip you're in the Cow Hollow/Marina neighborhood. Believe me there is far more demand for a beautifully prepped and staged home in the Marina for under 3 mil, along with other prime areas of this town. (Pac Hts, Russian and Nob Hills, Noe Valley, Lake District, Sea Cliff etc... The media reports on doom and gloom and they can't get a handle on positive news. (Doesn't sell media advertising!) People in the hardest hit - over built - areas experience. (In Las Vegas, Phoenix and LA markets can't believe we're seeing multiple offers over asking price for some of these homes as they draw from their own experience.

Believe me, it really jogs and boggles their minds! But really - How can you compare a 4 Br 3 Ba home in a suburb of Las Vegas or Los Angeles to one that's a block from the Marina Green or sits above Union Street?

Even Carol Lloyd of the SF Chronicle SFGate.com fame wrote a great article about the Tale of Two Cities in San Francisco. We really do have two "San Francisco's", actually many more than two!

So be my guest and take a look at 168 - 170 21st Avenue in the beautiful Lake District. You'll see there is a margin there to flip it into a property like 162 23rd Avenue two blocks away! }:-) And even more upside if two owners buy and hold for 2-3 years to go condo. I can't tell you what the future will bring as my crystal ball has fog rolling through it like everyone elses, but the prospect for people continuing to move to the world's most favorite City is still great and we can't increase the supply of land and we certainly can't build enough housing for everyone who wants or desires to live here fast enough.

All my best,

Michael Ackerman, Zephyr Real Estate, 415-695-2715, ABZ@ZephyrSF.com
0 votes
Cary Beach, Agent, Cedar Park, TX
Sun Feb 10, 2008
Keep in mind the TERM Flip is really illegal, and you must be careful how you do it.
This is a declining market and there is a huge amount of people out of their homes due to foreclosures, best thing to do is buy something and rent it for a couple of years and see what happens.
Flipping homes really don't work like they show on TV in this market. Keep in mind many of those shows are re runs and are over 2 years old.
Web Reference:  http://www.realtor-beach.com
0 votes
John, , Los Angeles, CA
Sun Feb 10, 2008
Julia,
Check out this story about someone who bought for the short-term:
The up-and-down equity watching was far from the mind of one University City homeowner, who bought a one-bedroom condo there in May 2004. He financed it 100 percent, planning to stay in the unit for at least two years before selling and maybe moving up.

But the market stopped ascending and his family grew and now the homeowner is weighing his options. He asked for his name to be withheld to avoid the stigma -- and potential legal implications -- while he contemplates foreclosure.

After buying the condo, he got married, and when his wife became pregnant a year ago, they knew the condo wouldn't be enough space. At that point, the unit would've sold for about $30,000 to $40,000 less than he'd paid. He decided to hang on to the unit and hope for a market turnaround. In the meantime, he moved out with his wife and baby, and they lease the condo to a tenant for about $1,000 a month less than they pay for the interest-only option on their monthly mortgage payment, while also paying their rent elsewhere.

Every once in a while, he checks online to see what comparable units are selling for. The value has dropped to about two-thirds of what he paid now, he estimated.

"This is so much beyond my worst expectations," he said. "I don't see it coming back anytime soon. Is it going to take five years, 10 years, just to get back to where it was then?"

http://voiceofsandiego.org/articles/2008/02/06/news/walkaway…

Good luck,
John
0 votes
Mike Ackerman…, Agent, San Francisco, CA
Sun Feb 10, 2008
Julia,

It's all about location, time and margin. The area hardest hit by flippers in San Francisco right now are south of Ocean and Geneva Avenues. There you can see the results of some investors getting hurt in some bad flips.

But opportunites abound and right now people see the potential at 168 - 170 21st Avenue in San Francisco is perfect for that scenario.

http://www.168-170-21stAvenue.com Open this Sunday, February 10th from 1 - 4

I recommend you think in longer time frames. Buy the property, live in it as you renovate, sell it after two or more years. There you have the best of all worlds and are least likely to get hurt by market fluctuations. If you think about, holding a property for two or more years simple means you don't get hit as hard by the tax man!

Work smart! When you work with a Realtor who knows value and has contractor / architect / builder resources, you're working with a pro who can coach you. Hook up with a professional you 'click' with and allow them to show you the benefits and risks.

You can make money in any market - you just need to work smart!

Michael Ackerman, Zephyr Real Estate, 415-695-2715 - ABZ@ZephyrSF.com
Web Reference:  http://www.ZephyrSF.com
0 votes
J R, , New York, NY
Sat Feb 9, 2008
I wouldn't try it myself but I have one client that seems to have a knack with finding properties and flipping them even now. This is at the very low end, though.
0 votes
John, , Los Angeles, CA
Sat Feb 9, 2008
Here's a great flipper story for you:
14444 Rock Rose, San Diego, CA 92127 (3,531 sqft)
--03/2003: purchased by the RSF Triumvirate for $849,000.
--04/2006: purchased by first flopper for $1.365 million with 100% financing using First Franklin.
--03/2007: REO with US Bank.
--06/2007: listed on MLS as REO for $1.099 million.
--10/2007: sold to aspiring flipper for $905,000.
--01/29/2008: listed for $1.1 million to $1.2 million.

This guy is a flipper trying to make a quick buck...but wait, there's a listing across the street!
14413 Rock Rose, San Diego, CA 92127 (3,323 sqft)
--08/2007: REO to bank.
--09/2007: listed on MLS for $1.1 million.
--11/2007: reduced to $925,000.
--02/2008: 149 days and still no sale.

Wonder how that flipper feels...
0 votes
SFisHome.com, , San Francisco, CA
Fri Feb 8, 2008
Experts can... and do... if you look around, it's happening in every neighborhood here in SF. Start looking for it and all of a sudden you'll notice a ton of construction happening in SF... and it's not all home owners upgrading their own places, there are a lot of flippers in SF. I personally know two active flippers personally and am aware of several others... and in looking for "deals" this past week I identified a single family home on Twin Peaks. By the time I called, after 6 days on the market they already had 14 offers. The place was a dump, but with good bones. I bet you see that home on the market in about 6 months for at least $200,000 over the winning bid (not mine - we passed due to the competition). That's just one story, from one Realtor, in one week. But... if you don't know how to hire and run a crew, find the best deals on materials and appliances... don't try it unless you can afford to learn from your mistakes.
Web Reference:  http://www.SFisHome.com
0 votes
Jed Lane, Agent, Petaluma, CA
Wed Jan 30, 2008
It is almost always risky. If you know what your doing and know the values it can be done in any market. I have a client that is a contractor and is establishe in lining up his own projects so that he is ready to put the crew on when planning and permitting are finished.
He can look a property and know how much it will take how long it wil ltake and what he wil be able to get for it in the neighborhood where it is. He also knows when to pass and he is also ready to hold if need be.
Web Reference:  http://JedLane.com
0 votes
Patti Philli…, , Carlsbad, CA
Wed Jan 30, 2008
Julia, I wouldn't suggest it to any of my clients. I have seen some on the market recently where people thought they were going to do that, they sit, and the price comes down, down, down..... One that I had on the market got bought by an investor---- poured--- I can't IMAGINE how much money into it (cracked slab, you name it) Now it is on the market for LESS than we sold it to him for, and not moving!

Don't do it!
0 votes
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