Real Estate- flipping - Page 3

mikeyKay · #21 09-06-2006, 09:42 AM

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Did anyone even read that article I linked to?

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i read it, it was good. i think the moral of the article is to find really really busted homes, make them decent, then get somebody to pay to you to take over your headache.

BonusMidas · #22 09-06-2006, 10:30 PM

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If you do $1 of home improvements then you can't create more than $1 of value. It's not possible. If it has been possible the past few years it is because we are in a ponzi scheme.

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You don't even know what a ponzi scheme is.. House flipping is not a one of them. And, it's stupid to say that you can't create value by adding to a home. Why would homebuilders ever build a home to begin with?? they do it to add value to what used to be useless lumber and cement, then sell the house. Same with flipping a house.. Just depends on how much work you want to put into it.. for some people it just ends up being another fulltime job and pays about the same in the end.

Thremp · #23 09-06-2006, 11:34 PM

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Is it just me or do most people overestimate the value they can add to a home by fixing it up?

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Growing up my parents used to tell me that for every $1 you put into the house you get $0.80 back when you sell it. Nowadays people have the idea that you put $1 in and you get $2 out, but it won't always work that way. The dot com bubble only happened 6 years ago it amazes me that people haven't learned anything.

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This is a shady generaltization man. Some things are toatlly worthless like... a new pool. Somethings though can add some real appreciable value, but you're going to be taking places that're total dumps and fixing them up and trying to cut corners and save costs.

You're also going to be able to find someone to do the work and cheap.

On most of these shows don't they split the work into someone who handles the acquistition and selling of the property and all the white collar work with someone who does the actual blue collar work of fixing the homes?

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If you do $1 of home improvements then you can't create more than $1 of value. It's not possible. If it has been possible the past few years it is because we are in a ponzi scheme.

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This is ridiculous. Sweat equity comes into play. If you become the "general contractor" and find all the small guys yourself you can save around ~15% depending on your locale on the price of your home. But then people might try to screw your etc.

Let me give a quick concrete example. You own a 2k foot sqaure foot home. Price per sqaure foot in neighborhood is 90-110 per square foot. All homes are built off floor plans so none are much nicer than the others. You talk to a general contractor and learn you can add 200 ft of room on the rear of your house for $12k. Do you think this adds value 12k or less of value or not?

Thremp · #24 09-06-2006, 11:50 PM

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Did anyone even read that article I linked to?

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Yeah, has some good stuff. I think alot depends on the market you're looking into. A 200k home is much different from a 1.5mil beachfront home where there is structure that is sound but ugly and in terrible condition (After a hurricane perhaps?) where they could sell it for 1.5 mil with or without the home. If building a new home would cost 500k but you can fix this one for 300k. You might have something to get after.

Also somethings are very dependent. If you rent out a college price apt in your area say ~500 bucks a month, no one is going to complain over an outdated bathroom. But if you're selling an expensive home (500k+ in South and Midwest 2-3mil in Cali?) people are going to balk over having to change the carpets before they move in.

Later thoughts: From reading this guys site it seems he's dealing almost solely in lower end type homes.

hawk59 · #25 09-07-2006, 10:49 AM

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Is it just me or do most people overestimate the value they can add to a home by fixing it up?

[/ QUOTE ]

Growing up my parents used to tell me that for every $1 you put into the house you get $0.80 back when you sell it. Nowadays people have the idea that you put $1 in and you get $2 out, but it won't always work that way. The dot com bubble only happened 6 years ago it amazes me that people haven't learned anything.

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This is a shady generaltization man. Some things are toatlly worthless like... a new pool. Somethings though can add some real appreciable value, but you're going to be taking places that're total dumps and fixing them up and trying to cut corners and save costs.

You're also going to be able to find someone to do the work and cheap.

On most of these shows don't they split the work into someone who handles the acquistition and selling of the property and all the white collar work with someone who does the actual blue collar work of fixing the homes?

[/ QUOTE ]

If you do $1 of home improvements then you can't create more than $1 of value. It's not possible. If it has been possible the past few years it is because we are in a ponzi scheme.

[/ QUOTE ]

This is ridiculous. Sweat equity comes into play. If you become the "general contractor" and find all the small guys yourself you can save around ~15% depending on your locale on the price of your home. But then people might try to screw your etc.

Let me give a quick concrete example. You own a 2k foot sqaure foot home. Price per sqaure foot in neighborhood is 90-110 per square foot. All homes are built off floor plans so none are much nicer than the others. You talk to a general contractor and learn you can add 200 ft of room on the rear of your house for $12k. Do you think this adds value 12k or less of value or not?

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OK fine you can add labor to the equation. So if you install $8k worth of upgrades to your house and you do the upgrade yourself but it would have cost $2k to have a contractor do it, then you have created $10k of value AT THE MOST.

Houses DEPRECIATE, land APPRECIATES.

PokerAce · #26 09-07-2006, 11:48 AM

What I got out of that article was generally that unless you do most of the work yourself (to save on labor cost), or you do dozens or hundreds of flips per year (to get volume discounts), it's not practical to flip houses.

Those TV shows have people buying houses in $800k neighborhoods for $600k. Then they put $70k into it and sell it for $800k for a $130k profit. First, it's extremely difficult to find such a deal, even with a rundown house. Second, they don't take into account taxes, realtor fees, etc when showing the profit ($48k realtor fees, $24k taxes, etc). That $130k profit is actually closer to $50k in the bank. They also don't mention that the sub contractors and stores are more willing to give extreme discounts to these people in order to get television exposure.

Simply put the TV shows romanticize the process in order to get ratings.

elus2 · #27 09-07-2006, 12:32 PM

PA,

Thats what i thought as well. For the average investor with no edge versus the rest of the rest of the market (ability to find value in hundreds of MLS listings, ability find cheap but good quality labor, ability to quickly finance and then sell property) it would be difficult to make money on a consistent basis. Plus if one did have the ability to finance these types of deals quickly, there are probably better ways to create value out of the property such as subdividing and erecting higher density housing units.

Thremp · #28 09-07-2006, 01:37 PM

PA,
Seems like large economies of scale. If you're doing a 200k of sheetrock work a year. Your sub is gonna work his ass off for you. If you're doing 20k a year. Meh... Whatever. I think there's a much bigger edge in the higher end homes.

Hawk,
You obviously have little expierence with real estate. As with most other thing on this board. My example was pretty clear. By making an addition esp. if your home is one of the smaller in the neighborhood you can usually add value to your home. And it is vastly cheaper than finding a new larger home.

Your view of dollar in getting at most a dollar out does not hold true. It's like talking about efficient market hypothesis when markets aren't.

OpenWheel · #29 09-07-2006, 01:48 PM

You should really read the thread you participate in before you make any more assertions. Several examples have been given about ways to create value. By your incorrect understanding of how value is created we wouldn't have new homes built because it would be impossible to have extra value (profit) created.

A good example was the 12k addition at a significantly lower cost then what the square footage goes for in that area.

You can claim things along the lines of "no value was created becuase the buyers could have done it themselves for lower cost" but that's just showing a fundamental lack of understanding of value creation.

None of the televisions I've bought appreciated either. They all depreciated. So that means that the companies that built them should have bought land (it APPRECIATES!) instead of making tv's?

hawk59 · #30 09-07-2006, 02:05 PM

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Hawk,
You obviously have little expierence with real estate. As with most other thing on this board. My example was pretty clear. By making an addition esp. if your home is one of the smaller in the neighborhood you can usually add value to your home. And it is vastly cheaper than finding a new larger home.

Your view of dollar in getting at most a dollar out does not hold true. It's like talking about efficient market hypothesis when markets aren't.

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Finding an innefficiently priced house and doing some work on it to bring it closer to its real value is one thing. Do you think all the house flippers that have cropped up are smart real estate value investors? No of course not, when the tide turns(which it appears is happening) they will be holding the bag and will go bankrupt. Everything about this thread reminds me of what was going on with people holding tech stocks when the Nasdaq topped. The aftermath of the real estate bubble might even be worse.