Soft market teaches flippers an ever-so-humble lesson

[NVMojo]

USA TODAY
Investing in real estate looked so sexy. Like the tech-stock bubble that turned college kids and housewives into day traders, the real estate boom turned insurance brokers, doctors and bicycle mechanics into real estate flippers, who would buy and then quickly sell homes for easy profits.

Now those profits are shrinking fast. Nearly one in five flippers who sold from April to June actually lost money on the deal, the highest level in 2½ years, according to HomeSmartReports.com, which today will release a report on flipping activity in 147 metro areas.

The vanishing act of speculators is accelerating the decline in home sales this year. That's making life hard for home sellers but giving buyers a bonanza of choices. It's also a stark reminder of the cyclical nature of real estate.

Though it's too early to say how far the market will fall, short-term real estate investors are learning how hard it is to make money — any money — once For Sale signs begin hanging in yards for months. Sellers cut prices, and builders hand out swimming pools to entice hesitant buyers.

more...

http://www.usatoday.com/money/economy/housing/2006-09-20-flipping-usat_x.htm

[SledDriver]

1. Ever watch that show Property Ladder on TLC?

Those people often underestimate the cost and time involved in renovating. Even though most make some money, it's usually no where near what they originally forecast.

"Yeah we bought a 1940's house, gonna gut it, knock down some walls and open up the space, redo the kitchen with new cabinets, granite countertops, new appliances. Gonna redo the bathrooms, new tile and fixtures. Put in French Doors in the dining room. New roof, landscaping, etc.. 6 weeks and $15,000". Usually ends up being 19 weeks and $54,000.

You'd think that if these people are going to be on a show called Property Ladder about first-time flippers, they'd do some research, maybe watch a show or two, and plan a little better?

[Warpy]

2. The house two doors down from me is a flip

The guys who did the work sold it themselves for a little under the comps and made their profit. A real estate company snapped it up immediately and jacked the price up $20,000. That was almost 4 months ago.

No one has looked at it when I've been here. There is now a "REDUCED!" sign atop the real estate company's for sale sign.

The guys who did the work didn't get greedy, made their money, and got out fast. I'm thankful for that part. The fast buck artist who thought it would be easy to turn over for a quick, fat profit is screwed as he's paying a bank a high interest loan every month.

Speculators are all going to be taught harsh lessons. There may still be money to be made in flips, but only if the purchase price is very low, the interior trashed, and cosmetic work without structural work is needed.

[flamin lib]

4. That is what most successful buy/resell investors do.

"Flip" is a bad word in Real Estate--calls up thoughts of the Savings & loan debacle of the '80s.

Anyway, I saw an investor buy a trashed interior 3/2/2 for $70k, invest $8k and sell it in 90 days for $95k. Comps were in the $110 range.

That's an annualized return of 85% on the investment--no need to be greedy!

Right now is not a great time to do that though--we are going into a declining market that probably won't recover for five years. A lot of downward pressure on pricing.

[AnneD]

3. You could see it coming....

any time I hear folks say 'RE is going to continue to go up in value in this market' or 'this is a real money maker-you can't fail' my butt cheeks pucker.
I have also heard that the war will only last 6 weeks, oil will pay for reconstruction, and one of our soldiers can fight better than _____ of their soldiers....
When everyone and their dog is flipping property, you know the music is going to stop and someone will lose their seat!
There are ways to do it right but too many of these folks opened themselves to risk-too much risk.
Every thing is cyclical in nature. I guess that is a plus to being older-you've lived through a few cycles.

[flamin lib]

5. Saw a message scrawled on a rest room wall in Dallas . . .

"Please, God, just one more real estate boom. I promise I won't piss it away."

Well, folks, it ain't rainin'.

[NVMojo]

6. now, that person is desperate, thinking of his/her losses while pissing

[AnneD]

7. Right after the oil bust in the early '80's

we saw that same prayer scrawled all around Houston, but phrased for oil. The nice thing about having gone through boom and busts in several markets-you learn. You can see a boom coming and you learn when to cut your losses and definitely learn to set aside for the down cycle. I gave up buying a house 5 years ago when the market started overheating. We are renting, paying off debt, and saving for a big down payment or even constructing our own.

[NVMojo]

8. we are doing the same, AnneD, and you are right ...people should

learn when to notice the signs ...

[Sammy Pepys]

9. ...or even just recognize that...

boom/bust is a fact of life. Things go up, things go down.

[NVMojo]

10. I agree. I just moved from a gold mining town after 17 years ...

talk about boom and bust and hit repeat!