Tuesday, February 12, 2008

Flipping Homes and the Bad Rap it Gets

I will be the first to say that there are some good things that come out of our Realtor Associations, like consumer advocacy, Realtor education, and the option now for health care. But I don't agree with everything that comes out of the mouths of our so called "leaders" here in the Realtor world.

Today I was reading an article written by Glenn Dorfman, the COO of the Minnesota Association of Realtors, in which he implies that flipping and making money fast in the real estate world is a bad thing. He even states that professional Realtors "deplore" the practice. Now I am glad he had decided to speak for me on that account because I would have hated him to state how I actually feel. To say that I should deplore making fast money, is like saying I should deplore the rush caffeine brings..

Before the market started booming, I flipped homes because they were affordable (Once it became fashionable to flip, we got out of the business because you could no longer find a good deal). My husband and I found homes that were usually abandoned by the owners, negotiated a purchase price with the home owner (usually an heir who no longer wanted the home, or lived out of state) that was a win-win for both parties, then rehabbed the homes and updated them to the current tastes of the market. It was a great business. Sure, we made a profit when we were finished, and trust me, the houses we rehabbed afforded maybe a profit of $10,000 when all was said and done. But as a real estate agent, it was even more rewarding when a neighbor approached us to thank us for what we had done....that being removing an eyesore from the neighborhood and replacing it with a home that would help improve surrounding property values.

In the past few months, a lot of negative publicity has been given to flippers. Sure, there were those that jumped into the market to make a quick buck and at the same time, produced a lot of bad remodels. But there were also those out there that operated the flip as a business, not a hobby, and did a lot of good. They gave buyers a product they wanted, and not only rehabbed homes, but rehabbed neighborhoods.

I for one took personal pride in each home we finished. I remember when a contractor had put together a kitchen, and the countertop seams did not meet properly. When I asked him to fix it, he made the comment that a buyer in this price range of a home wouldn't mind the flaw. But see, I don't produce shoddy workmanship, no matter what type of home it is and his "flaw" was not acceptable to my standards. I told him to fix it, or not get paid, which no big surprise he fixed.

Flipping homes is not a bad thing, it is just another way of selling a home. Some people buy homes, rehab them, then rent them out. But not every home fits nicely into that model. Believe it or not, a home that has been rehabbed does hold a higher market value than it used to, and if the market bares the new price, then there is no problem with flipping. Like I said before, flipped homes, when looked at as single home, does not afford a large profit. It is only when you have volume that you can make a lot of money in flipping. (Don't believe what all the HGTV shows tell you about the huge profits those featured home owners are making. They never reveal the true profit, after capital gains, taxes, expenses, etc are taken out. )

So there you have it, my view on the issue - one that comes from experience in the matter. Greed is defined as "the selfish desire for or pursuit of money, wealth, power, food, or other possessions, especially when this denies the same goods to others". I think the term "greed" is being thrown around too easily in our society today and being used to describe instances when it shouldn't. Making money is not greed, it is capitalism.

3 comments:

Real Estate Web Design said...

Looks like he is blaming the whole housing bubble on the flippers. Of course we understand that many people had a part. The lenders, the buyers, the Fed, the president. But everyone has found a fence to stand on and until this all become a cold case file and people can access the real situation some will blame the foolish flipper who didn't undertand what they were doing.

I think flipping is a good thing it rehab homes, it improves neighborhood appearances. Maybe he has a problem with different type of flippers so go in and get it done and turn out a cookie cutter cosmetic rehab and some go in as yourself and take pride and make it something they would want to live in. The problem is if you invest alot in a house and that area can not compare then this one property does nothing for the neighborhood. Remembering to stay comparable to the area is important.

Jennifer Kirby said...

Staying comparable is very important, like you say. I have seen many wannabe flippers put granite countertops, tile floors, etc in homes that should not have those amenities, because no other homes in the neighborhood have them. While it makes the home more desirable, it is not a good financial decision by the flipper.

Susan Gruenling said...

I agree that "Flippers" get a bad rap. I, too, have renovated homes. It is important not to price yourself out of the neighborhood by choosing high end finishes that are not commonplace in the area. Not all homes and price points warrant a 6 burner Wolf stove or even slab granite counter tops. Choose wisely and everyone will be happy. And always, always remember that quality workmanship and taste is important. Beware of keeping tired old worn-out cabinets and slapping on a piece of slab granite and calling it a remodel. Likewise for choosing complementary finishes and not throwing together whatever the left-over tiles and flooring the vendors had lying around.