house flipping idea: opinions?

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mango
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house flipping idea: opinions?

Post by mango »

Hi all, Just had a random idea and wondered whether anyone thought there would be a market for it... I live in a fast-growing city. However, the housing market is in a slump and lots of houses are staying on the market for months and months (a few in my neighborhood, brand new houses, have been for sale for over a year). Everyone has heard of 'flipping' houses by now (buying a beat up house cheap, renovating it, and selling for a big profit). But how about the new houses that are stuck on the market? Buying one of these new houses actually requires a huge investment after the fact to make it habitable. What if someone bought the new house (they've all been marked down by now, and there might be a deal to be had), fixed it up, and then sold it for a modest profit? And by 'fixed it up', I mean: - landscaping (the builders take all of the top soil and then throw down garbage grass seed: nothing grows at all, so you usually have zero grass + a token tree and a few bushes), including lawn seeding, edging, flowers, plants, trees, mulching, etc. ($10,000) - fencing ($3000) - window blinds ($2000 to $3000) - painting inside (nice neutrals other than white) ($1000) - crown molding ($1000) - mailbox ($100) - security system ($300) - replacing ugly fixtures and mismatched hardware ($300) - sealing garage floor ($300) - irrigation system ($3000) - cleaning ($300) - patio or deck ($2000) What if you did all of these to the new house, and then staged it and sold it for more than you invested in it? It would be a very modest profit, but it might be huge fun. I'm curious whether anyone thinks this might be a good idea. Plus, if you're interested in speculating, here's a hypothetical: New House #1 = $150,000 with none of the improvements mentioned previously. New House #2 = ??? with all or most of the improvements mentioned previously. How much would you pay for the second house? Part of me feels that if it were profitable to finish out houses in this way, the builders would do it themselves before letting the houses sit on the market. Looking forward to hearing your opinions! :D Thanks.

kdb
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Post by kdb »

This brings back memories of a friend of mine who kept on buying dot-com stocks even as the tech bubble imploded, in 2001... \"They'll rebound\", he told me. If houses are currently staying on the market for months, I highly doubt \"your\" house will sell quickly. The few buyers out there will be looking for bargains and are going to haggle very hard since they know they're in the driver's seat. In my opinion, if you're only shooting for a modest profit, it'd be easier to put your money in CDs and earn 5%-5.5% risk-free. Read about a flipper who lost his shirt [his own words, not mine]: http://www.websitetoolbox.com/tool/post ... id=1205179

mango
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Post by mango »

Thanks for your reply. True, it might be hard to re-sell. Houses are selling here, but people seem more likely to spend on a new build than on another new house that's been sitting on the market for a while. I haven't seen the inside of the houses in my neighborhood - perhaps there's something truly awful in there! Another option would be to do all of the extra stuff and then turn it into a rental. After further thought, I think I'm most interested in the landscaping/curb appeal angle. I wonder if there's a market for a decent new house with beautiful landscaping (versus the crap that they currently sell you with the house). And, if so, how much could you bump up the price? It's sad to see all of these new homeowners (myself included) trying to scrape together the extra cash for the landscaping. Of all the yards in our neighborhood, only 1 or 2 have been landscaped. The rest are still trying to fill in the bare patches in the lawn.

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Post by urbanpioneer »

In general, flipping a house in any way usually requires a bull market in housing. Currently we do NOT have that. While the old adage "buy the worst house in the best neighborhood" is still true, it's very difficult to make a quick profit. The whole point of fixing up and maintaining your house is to maximize future return when you sell it. In the meantime, you get the "use and enjoyment" of the improvements, and try to do the improvements early on. If you made an improvement in 2000, you paid 2000 prices for that. You can now sell the improvements at 2007 prices, so hopefully you will make a profit. I just heard this morning on CNN that "the most bang for your buck" in home improvements is updating your kitchen or bathroom. They said you will get 85% of the cost of those improvements back on the sale of the house. In other words, you have lost 15% of the cost. Plus there is currently a 9 month backlog of new houses on the market waiting to be sold. That's a lot. I just don't think this is a very good time to get into real estate speculation.

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Re: house flipping idea: opinions?

Post by pattyn »

mango wrote:New House #1 = $150,000 with none of the improvements mentioned previously. New House #2 = ??? with all or most of the improvements mentioned previously. How much would you pay for the second house?
Around $152,000. Certainly not the 18 to 20% extra you'd need to make a profit. For that much money, I could put my kids in a bigger house in a better school district. And the idea of putting my lawn and blinds on a 30-year mortgage gives me the shivers.
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Post by katchal »

You'd have a lot less investment and lower risk doing cosmetic updates to an existing house. However, this is definitely not a good market for small time real estate speculation. Very high risk - don't undertake the project if you can't afford to carry the property for at least 3 times the average number of days homes in your area are staying on the market.

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Post by merk »

mango wrote:After further thought, I think I'm most interested in the landscaping/curb appeal angle. I wonder if there's a market for a decent new house with beautiful landscaping (versus the crap that they currently sell you with the house). And, if so, how much could you bump up the price?
I dont think the landscaping would add too much more to the price beyond what you spent for it. doing interior work i think would probably bump the price up more then landscaping. Because its a little more inconvenient to do interior work once you have moved in. But landscaping you can pretty much do anytime. so at least there's a convenience factor involved with interior work being already done when someone buys the house.

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Post by mango »

So, I'm getting the impression that you all think this is a terrible idea... Thanks very much for the feedback. Maybe I'll start by landscaping my own yard, and see what that does to my property value. Again, thanks for your thoughts.

urbanpioneer
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Post by urbanpioneer »

Unless you're planning to sell your house soon, who cares what it does to your property value? What matters is what "use and enjoyment" you will get out of it while you live there. I have a big bald spot in my backyard underneath where my kids' trampoline sits. I can replant the grass, but they get an amazing amount of fun out of the silly thing, and that's more important, for now.

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Post by sgoldie »

Not recommended, your flipping idea. You could get into trouble bigtime. Instead, if you want, put together a business doing landscaping or any of the other things you were talking about to improve (others) houses, and charge them for it.

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Post by kitfitz »

Really bad idea right now... Check out this site: http://www.piggington.com It is about San Diego, but people are on there from everywhere, and if you read Prof.Piggington's \"bubble primer\" you'll understand all this bubble very thoroughly and RUN from your idea!

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Post by carwel55 »

I just went to the Learning Annex Real Estate Expo. It was very interesting and there are a lot of people making money flipping houses. One speaker said buy houses 30 to 40% below market so after upgrades you still make a good profit. Buy homes that will sell to first time home buyers. Look for up and coming areas. I live in Philadelphia and a few years ago there are areas where home costs were 40 to 50,000 and now with upgrades are selling for 350 to 400,000. I am looking to sell ,and my mortgage broker said she has been really busy since february. It's not a booming market like it was a few years ago, but houses are still selling. I would be careful with buying a new home and making upgrades, you may overimprove and not get your money back. I would not pay thousands more for a home for things I could do myself. But I do think there is money to be made in flipping houses. I did a google search and there is alot if info, also there are books on the topic. I plan on flipping a few houses with my son. I am doing my homework. Carol W

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Post by sgoldie »

In my opinion you couldn't add enough upgrades to a $50,000 house justify a profit of $350,000 in a couple of short years including price appreciation. I wonder if that mortgage broker is doing re-fi's for people who are stuck in mortgage trouble? I'm beginning to see a similar set of speculative parameters that lead us to the great depression. Beware!

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Post by kitfitz »

I agree with you sgoldie. It is getting a little frightening.

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Post by dani »

Even the title of the seminar is a little scary. :?
I just went to the Learning Annex Real Estate Expo. It was very interesting and there are a lot of people making money flipping houses.
Or so they say. 8) I'm probably better off living in impoverished bliss--can't possibly afford to do anything rash or risky. :D

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