What’s wrong with flipping houses?
Probably nothing…IF you can do it within a budget, pick the right houses in the right location and have enough money to last if the house does not sell quickly.
In the real estate world, the late 1990’s and early 2,000’s were an artificial real estate environment. Any warm body could get a mortgage, buy a house and maybe pay for it. People were buying and flipping houses in terrible neighborhoods. Buyers could get mortgages on properties that were outrageously overvalued. Appraisal prices were whatever we wanted and mostly fiction, not good, fact based, actual value.
And then there’s now.
It’s time to face facts. The value of many properties has actually declined. Some are nearly worthless. A lot of banks are holding mortgages that are without fundamental value.
A flipper wannabe probably would be worse off than the banks.
Most flippers go into the business with dreams of great success, not much money and even fewer skills at DIY.
The first thing they do is look for a property they can afford. Often they cannot afford a primo neighborhood so they settle for something less than great.
They pay too much for the property without considering how much the work will cost.
They discover the property needs lots of expensive repairs that drive up what they need to sell it for to make money.
They get a mortgage that has to be paid no matter how long it takes to finish the remodel and sell the house. It takes bigger bites out of their dreams than the repairs do.
If they sell the house they will run into appraisers and banks who WILL ask, “If it was worth $20,000 (or whatever) last winter, why would it be worth more now?”
They may never find a buyer with good enough credit to buy a house that wants to live in the crappy neighborhood where they could afford to flip a house.
Yes, there is lots of risk.
There used to be another way people bought and fixed up houses.
A local person would keep an eye on a particular neighborhood where they wanted to live. They would get to know people who lived there, look for properties that might go on the market, and snatch up a house when they got the chance…usually to live in it.
A good strategy was to buy the worst house in the best neighborhood that came on the market…perhaps even lingered for a while because of ugliness. A good many people can’t even evaluate pretty or ugly in a house. Styles change.
But it was really the neighborhood they were buying. Perhaps they had the best schools, or great houses, or they were close in to town where people worked. For sure they had the FASTEST RESALE!
You have to beat the real estate agents to houses that come on the market in these neighborhoods. They are looking, too.
People could go in, buy a great house where they wanted to live and fix it up any way they wanted, too.
The process of buying in the right, really desirable neighborhood and creating appeal where none existed was the money proposition, not just the remodel.
Great homes are way more than granite counter tops.
It’s the neighborhood, silly.
Here is an idea for you real estate entrepreneurs that you can do in place of or in conjunction with flipping, buying non performing commercial notes.