Flippin’ isn’t easy! (Long post) - Posted by Bill Scott
Posted by Bill Scott on October 29, 2000 at 08:12:24:
I’ve been seeing a lot of newbies who want to get into the business of flipping houses—usually because it looks like the fastest way to make some money. Well, it can be, but like anything else it’s going to take some real work. I’m putting this post out there as a ‘wake up’ to those who want to try this. Let me tell you a little about this last week…
The first problem with a flip is that you have to find the right property. I’m a realtor with five years experience and I belong to a local REIA. This means I can find low priced houses fairly easy–but then the surprises start.
One of the first properties I looked at was a building with a long ‘nose’ next to a busy state highway. The price was right—$9900, and I was thinking ‘what’s wrong? why hasn’t this sold?’. Well, it turns out this ‘nose’ has been bashed in by drunks in cars several times. In fact, it’s still bashed in from the last time. This property also used to be a gas station, and the tanks are still underground and they date from the 1930’s. They are also located next to a storm drain that empties into a creek. It costs about $7500 to remove these tanks IF they are intact. I decided I’d pass on this one! But, it goes to show that you really have to know the background of a property or you can get burned bad!
Another property I looked at was a new repo that had just come in. I know the broker and this property hadn’t even been advertised yet. It could be a duplex, he said, and the bank was willing to short sale for $13,000. Guess where it was? In the middle of a war zone! Several vacant houses in the area with the windows busted out, liquor bottles busted on the front porch, a guy dealing drugs on the corner. The problem with neighborhoods like this is that as fast as you repair the place, the vandals tear it apart. Nice price, but no thanks!
A third possiblity was a property with two houses on it. I drove over to look at it. The property is in a neighborhood of homeowners with a strong neigborhood watch program. Looks good so far right? Well, the houses were cement block and the insides needed some work. To fix up the houses at the price asked was doable–even with a flip to an investor. However, the neighborhood had a problem. This was a black neighborhood and most of these homes had been built by the blacks and then passed on to their sons and daughters. That’s how these folks became homeowners–and is a big flashing ‘STOP’ sign. I’m not racist, but I am a realist and in my area you just can’t find intact, black families with credit, who want to buy in an all black neighborhood. It’s very, very difficult to sell these properties. So…three good possiblities but none of them panned out.
What does this mean? Well, you have to find properties for about 60% of market value if you are going to flip them. You also have to find them in neighborhoods that aren’t war zones (or other problems) so that investors will buy them. You also have to look real hard at the properties background–if it looks like such a great deal, why hasn’t someone else snapped this up?
Then, after you find the perfect property, you have to advertise the heck out of it and find an investor and close on the property. I belong to the Cincinnati REIA and the estimate is that there are only about ten folks doing flips for a business in this area of about 1.5 million. Why? It isn’t easy!!!