Don't House Flippers Deserve A Profit?

By
Real Estate Agent with HOM Sotheby's Intl Realty, 949-510-2395 DRE# 01494165
http://actvra.in/4fkT

I was out with a home buyer. This was not their first time, we had sold their home a year ago and they have been traveling, visiting family, and RVing across the country....needless-to-say these are my kind of people :). But while I relate to them personally and greatly enjoy their perspectives on life, I was surprised to find a prejudice against "flipper" homes.

 

 

Because of my respect for this couple, I asked them if I could blog about this issue on Active Rain and make the conversation public. So beware....this is public.

 

The couple expressed that they felt that there was something wrong with an investor making money off someone else's tragedy and they didn't want to contribute....fair enough.

 

But then as I pondered this, I wondered what's wrong with someone taking advantage of a financial situation to create wealth?

 

 

It must be made clear that these are not people who bought short sales and are flipping them without any improvements, we were looking at home which were purchased at auction (I can tell because of the way our MLS shows the title) and then spruced up and re-listed. Normally these homes have fresh paint and carpet, the yards have been tidied up or replanted and often....the kitchens and bathrooms have had granite or tile installed. They are lovely homes!

So if an investor purchases the home, takes the financial risk, creates value and reaps a profit....all while providing an easy escrow and quality home....why is this wrong? I don't think it is!

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. David B. Meyers 08/14/2010 12:47 PM
  2. Randy Poll 08/14/2010 02:54 PM
  3. Kevin Peterson 08/14/2010 03:41 PM
  4. Lisa Ludlow Archer 08/14/2010 04:53 PM
  5. Eva Erdmann 08/15/2010 08:32 AM
  6. Brian Gibbons 08/15/2010 03:37 PM
  7. Bobi Bigelow 08/18/2010 11:23 AM
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Rainer
6,590
Geneice McCoy
Real McCoy Brokerage Company LLC - Augusta, GA

Real Estate is still the best investment. There is nothing wrong with choosing to invest in real estate to build wealth. The investor didn't cause the problem, nor adds to it. It is always better that someone buys the property rather than it remaining vacant and affecting the neighborhood in many adverse ways.

Aug 16, 2010 02:23 PM #314
Rainmaker
67,172
Andrea Curtis United Country Premier Properties Certified Military Relocation Professional
United CountryPremier Properties - Fort Hood, TX
Certified Military Residential Specialist

Yes yes yes........I work with a number of investors/rehabbers.   They do a fantastic job bringing the homes/muliti-families back up.   Making a profit is not a bad thing!  and they take the risk that others won't or can't so again yes!

Aug 16, 2010 02:32 PM #315
Rainer
27,113
Josh & Julie Hambarian
Josh & Julie - Steele Realty. North County San Diego Coastal - Encinitas, CA

I think anyone that helps rehab the homes in the neighborhood that need it deserves to be paid for their work.

300+ comments....Is that a record?

Aug 16, 2010 05:41 PM #316
Rainer
4,981
Amy Terry
The Terry Team 8Z Real Estate - Littleton, CO

I've run into the same issue with some of my buyers. Not so much feeling bad about the previous situation, but a feeling that the investor does not deserve, the sometimes, very large profit they make.  Or they want proof of every dime put into home to justify the price increase.  It's tough to explain to buyers the value of the home is determined by other recent sales and age old supply and demand not what the investor paid for the home.  Flippers work hard to find the deals they do and I don't see why they should be denied a profit - this is there career and their income.

Additionally, flipped homes are, in some areas, the only homes stabilizing values.  When a neighborhood is hit hard with foreclosures often times the highest sales price is a home that has been flipped and help to pull up values. There is a stigma with a lot of buyers that needs to diminished and I think buyers agents educating their buyers and asking the right questions to sort out their concerns is the best way to do that.  Great topic to open up for discussion! 

Aug 16, 2010 06:07 PM #317
Anonymous
Anonymous
Steve Marx

The idea that an investor cannnont buy a property and re-sell it for a profit is properterous!

If a homeowner makes a low offer to a bank, is that fraud?

If a homeowner makes a low offer on a short sale is that unethical?

If a homeowner makes a low offer on a home, buys it, adds zero value and sells it 6 months later, have they done something "illiegal"? Should they be judged for making money on that house?

Is there a limit in our country about how may homes you can buy? or How many homes you can own at one time? Are anti flippers socialists?

The idea that these ansers should be any different for an "investor" is just rediculous!

Aug 16, 2010 06:26 PM #318
Rainmaker
127,822
Craig Snead
Quality Home Investments, LLC / Dearborn Heights, MI - Dearborn Heights, MI
Real Estate Investor

Karen, WOW........I started to read the responses and I couldn't do them all.  I am a real estate investor. I buy houses, rehab then sell them. I put a lot of time and money into something that may or may not return a good profit. Am I gambling? Yes.  Do I deserve to make a profit?  Yes.     I have seen some "flippers" that come in with ten gallons of paint and new carpet and call it a rehab.    I pay attention to detail. Gut the bathroom and kitchen. All new ceramic tile, cabinets and appliances. New lights, switches and plugs throughout. All new six panel interior doors and hardware. The list goes on and on.  All properties are brought up to code. The new owners have a "move in" ready home.  I put contractors to work and purchase supplies that helps the local businessess. The neighborhood has a nice home instead of an empty, run down building. It is a win-win all the way around. YES, I DO deserve to make a profit.

Aug 16, 2010 09:35 PM #319
Anonymous
Anonymous
Vivian Hooton

Karen,

Thank you for restoring my faith in RE agents. I am a flipper with a good reputation. Should I come across a property that has a good opportunity to flip I have received such negative remarks by many agents it almost makes one have to stop and reevaluate the situation. For that reason alone I have a few selected agents who I know and trust and usually deal only with them. My impression became that all agents think like the uninformed, biased idiots. The is a globalization, I understand, and now am happy to see so many positive remarks. Still sticking with my trusted few yet not as leery to work with other agents.

 

Aug 16, 2010 10:33 PM #320
Ambassador
1,063,507
Karen Fiddler, Broker/Realtor
HOM Sotheby's Intl Realty, 949-510-2395 - Laguna Beach, CA
Laguna Beach & Lake Arrowhead, CA (949)510-2395

Vivian....I'm so glad you feel better about us all! We're actually a great bunch :)

Aug 16, 2010 11:07 PM #321
Rainer
32,379
Christine Carroll
Done in a Day Design, LLC - Cleveland, OH

Strange.  I would think the people to focus your anger on are the mortgage loan houses like Fannie and Freddie (and the politicians who strong armed the industry into making bad loans) for making home loans to people who couldn't afford it.  No question many homes are being lost by people who were able to make the payments prior to losing a job as well, but do you want to let that property sit and rot and bring down the neighborhood value?  As long as it's a reputable flipper who actually improves the property, I'm happy to see them take on forclosed properties.  A run down empty house does nothing for anyone.

Aug 17, 2010 08:25 AM #322
Rainmaker
89,567
Raj Dhaliwal
Century 21 Coastal Realty Ltd. - Abbotsford, BC
(MyAbbotsford.Com)

Thats just the way business works. Why would someone have an issue with it?

Aug 17, 2010 03:46 PM #323
Anonymous
Anonymous
J Scott

As others have said, flippers are doing a service.  When they renovate, they are doing a service to the end-buyer and the neighborhood.  When they flip a short-sale, they are doing a service to the seller who didn't have to get foreclosed on.  When they wholesale, they are doing a service to the investor who is buying the project.

An investor who flips, rehabs or wholesales is just a broker...no different than any other type of broker.  They are going to profit more if they add more value, and will profit less if they add less value.  Nobody (the end-buyer, the seller, etc) is being forced to purchase their product/service, but if the broker can perform a reasonable service at a reasonable price, buyer and sellers will flock to them.

Also, and especially in this market, there are built-in protections for sellers and end-buyers -- houses must meet strict appraisal stanards, almost all buyers are getting inspections, lenders have instrumented seasoning rules, etc.

As someone who rehabs houses, I'm proud of what I do.  In fact, just today I got an invitation to a housewarming party from a couple who bought one of our houses back in May.  They know exactly how much money I made on the house they bought (every financial detail is itemized on my blog and I know they saw it), yet they clearly are still very happy with the deal they got. 

Win/Win.

Aug 17, 2010 08:15 PM #324
Anonymous
Anonymous
Anonymous
If the Investor hadn't bought it and fixed it then you people probably would not have looked at it in the condition it was in when bought at auction. This investor is only bringing them to a condition that would sell.
Aug 18, 2010 06:18 AM #325
Rainmaker
152,862
Kari A. Battaglia
RE/MAX Alliance Group - Venice, FL
Venice FL Realtor - RE/MAX Alliance Group

Wow it took me a long time to reach the comment box! My husband was a flipper years ago.  He put so much effort into fixing the home up correctly and reselling it at market value, sometimes under market value. He really did a service to the neighborhoods he worked in and the buyers loved the homes.

Aug 18, 2010 11:31 AM #326
Rainmaker
1,039,552
Nick T Pappas
Assoc. Broker/Broker ABR, SFR, e-Pro, @Homes Realty Group, Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Karen, way too many comments here to read, but I do agree that if you're providing a service by actually doing some work and improving the house that you are flipping...yes you deserve a profit.  This is how I got my start in real estate.  It truly was a win win for me and the buyer.

Aug 19, 2010 12:31 AM #327
Rainer
268,400
Lisa Moroniak
Keller Williams Realty | Northern Virginia | 703.635.0388 - Leesburg, VA
SFR - Short Sale & Foreclosure Certified

This is America.  If you can work an opportunity to the advantage of one, by all means.  If it benefits many - it would be a disservice not to take advantage.

Aug 19, 2010 07:18 PM #328
Rainer
62,978
Nicole Donaghy
ERA Wilder Realty, Lexington SC - Lexington, SC

I don't think there is anything wrong with it.  What else is to be done in that situation?

Aug 24, 2010 09:27 PM #329
Rainmaker
65,858
Lisa Wiseman
Intero Real Estate Services, San Jose, Silicon Valley - San Jose, CA

Karen, I work with investors that are trying to flip in a very difficult market. If it weren't for them, many of these homes would be on the market for way too long, adding to excess inventory and overpiced homes. (Many of these homes when flipped are very reasonably priced). Also, if they're REOs or short sales (many rules apply to investors purchasing short sales), they are more willing to deal with all the games the banks play. And they're paying cash!

Sep 02, 2010 02:12 PM #330
Rainer
37,493
Jeff Hahn
Keller Williams Realty - Coppell, TX
Coppell, TX Realtor

Legitimate "flipping" makes sense for all involved.  It's win, win, win.....

Sep 08, 2010 12:31 AM #331
Rainmaker
190,922
Malik Crichlow
GoodBuy Homes NJ Essex & Union County Real Estate specialist - Maplewood, NJ
Maplewood,SouthOrange,Union Real estate

Flippers are needed but only the ones that actually improve the properties and not just do take advantage of buyers and further add to neighborhoods that really need a boost.... I stay clear away from those types of investors...

Feb 18, 2011 11:26 PM #332
Rainmaker
130,634
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

I agree with you on the rehab/flipper side.  What would your clients prefer that investors do...not buy the houses (both preforeclosure and REO) and just let them sit there delapidated and dragging down the values of surrounding homes?  Investors are not given nearly enough PUBLIC credit for how important they are in the housing recovery.  They are the ones absorbing much of the REO, short sale, and shadow inventory, and converting non-performing bank assets into performing ones.

However, I disagree with the obvious bias you personally have against short sale flippers who have "made no improvements" to the property.  You should say, "they have made no PHYSICAL improvements to the property".  A skilled short sale investor and negotiator earns their profit on the deal by negotiating 1, 2, and oftentimes even more mortgages, as well as numerous liens, judgments, and other encumbrances.  This oftentimes takes hours of time, and a great deal of skill to settle all of these accounts, get the owners deficiency waived, and create a property that has free and clear title for the end buyer.  While they may not "improve" the physical property, they certainly do a lot to "improve" the title on the property through their skill and expertise.  This fact is made clear in FHA's waive of it's anti-flipping rule, in which it states that an investor can buy and immediately resell a property for a profit of up to 20% without showing any proof of physical improvements whatsoever.  Even the government admits that there are other factors that play into making a property more desirable to an end buyer other than just physical repairs...like clearing title and removing the wait time on normal short sales.

The other option would be to let unknowledgeable agents, who have an industry wide 15-20% success rate on short sales, continue to flounder at something they don't know how to do effectively, and end up leaving the seller worse off, and oftentimes foreclosed on. 

May 25, 2011 01:30 PM #334
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