Realities of "Flip This/That House"

[Debbie]

During research, I came across that I believe to be VERY important.

Those shows we see such as "Property Ladder", "Flip This House", "Flup That House" oftentimes provide misleading informations.

Generally, I do not place much stock on John T. Reed. However, he did write an article that I believe should be worth reading.....

http://www.johntreed.com/flipthathousereview.html

In the article, he pointed out what these shows have consistently failed to provide very important informations to the viewers. Such as time/money spent searching for a property, title problems, interviewing contractors, carrying costs, etc.

I encourage you to read his article. There are plenty more stated that I have not mentioned here.

[StepUp]

Great article by John Reed. I am a big fan of the the "Flip" shows, but mostly for the goofy personalities, the decorating/construction ideas and to learn "what not to do." I contantly mention to my wife after the shows end all of the costs never mentioned in computing the "profits." They do accurately describe the profits, though, as "Potential."

Some of the investors portrayed in the shows are obviously full-timers; and the shows do provide a slice of their daily routines, from chasing purchase money, finding properties (driving neighborhoods), dealing with problem subs, overcoming hidden construction issues, dealing with HOA's, and employing their families, realtors, neighbors and dead relatives to "finish" the house within minutes of the open house. The higher entertainment value is from the newbies doing their first flips, usually wrong, and amazingly coming out of it with "potential" profit. The better learning experience is gained from the full-timers who turn and burn - pushing hard each step of the way, knowing their profit erodes every extra day they don't close escrow with the next buyer.

Eric

[SPIVALAW]

Flipping house is a job just like selling cars.
No tax breaks and you pay earned income tax rates.

[AIR]

Flipping house is a job just like selling cars.
No tax breaks and you pay earned income tax rates.

very good point!

[TommyOH]

Flipping houses is also a cash business, so it depends on your goals. I personally did it for 2 years, and it was an awesome experience. Since that time I have come to realize there are much easier ways to make money so I've started leaning towards those. Maybe it's an age thing ;) However, that doesn't mean that if the right situation arose I wouldn't flip again, cause i sure would!

[SPIVALAW]

Nothing wrong with flipping houses.
It's fun and profitable.

I was just commenting because newbees need to understand tax difference when they start calling it investing.

[stallingsorg]

the the host and flipper of property ladder. she is smart and a expert of do or don't.

these shows have consistently failed to provide very important informations to the viewers. Such as time/money spent searching for a property, title problems, interviewing contractors, carrying costs, etc. debbie, you are right! it not the show responsibility, it the wannabe responsibility what it involved.

[AIR]

I just recently realized the difference in taxes when flipping a house (buy low and sell high). There are ways around paying that tax, right? 1031? CRT? When I first got interested in real estate investing I was focusing mostly on flipping, simply because it seemed like the quickest way to make some $$$. From my research so far... I believe its a much better idea to buy low, rent, and build my wealth slower but more consistently.

[Randy (SELA)]

But if you're cash poor like me, you might need a few flips to put cash in the bank first.

[Aldo]

AIR, I like your thinking. My success, for whatever it's worth, has hinged on the strategies revealed in your research. I've done exactly that as I sadly watch failures who think REI is a get-rich-quick scheme.

[Aldo]

Randy, you're right, but only to a point. Buying a multi right will give you cash flow and equity in one fell swoop. They're out there, but they're not going to knock on your door.

[Randy (SELA)]

Aldo, I agree with you, but I'm talking about putting cash in the bank. It's nice to have a cushion.

[Aldo]

Randy, your only 'money in the bank' will be in the form of equity which you may be able to tap for funds in the future.

Flipping can be a great way to make a bunch of bucks at one time. All you need to do is buy a rehabber, rehab it, and blow it off for a huge, but reasonable, profit. It's really that easy. Now, let's dissect that.

First you have to be able to recognize a worthy flipper which you may be able to do. Then you need the downpayment & closing costs and the ability to find financing. Once that's in place you have to pay for the rehab costs. You can do all of that........a few years down the road.

My advice is to buy a 2-4 unit property (no bigger) which needs some work and is priced below market value. If you buy right, you'll have positive cash flow and will gain equity from appreciation and paying down the mortgage.

The sad truth is that you are probably not in a good position to do a flipper.

[Randy (SELA)]

Aldo, I agree with you. Equity is essentially money in the bank. But is it feasible to tap equity everytime I need cash for repairs, vacancy, etc.? You've been at this a while, that's why I'm asking.
As for flipping, the 1st and 2nd houses we completed were done with re-hab loans. The mortgage included cost of house and cost of rehab, which was based on the ARV. The only out of pocket expenses we had were carrying costs for a few months. We decided to keep these 2 as rentals tho. The 3rd, we intend to flip and put cash in the bank.

[Aldo]

Okay, my boo-boo. I didn't realize that you've already done a few.

.....is it feasible to tap equity everytime.....
Absolutely and positively yes.........maybe. Ideally, you'll have a large amount of equity in a property which would enable you to use that equity as collateral for a line of credit (LOC). Basically, that wouldn't be much different than using a credit card account. Use it when you need it and don't when you don't.

My preferred choice is an unsecured LOC. Those are tougher to get, but they don't place a lien on a property you may wish to unload a few months down the road. If you have a good track record with your bank, talk to your banker about that. Even if you only get, say, a $5K unsecured LOC, you have your foot in the door. It's a starting point and you can build on that by maintaining or improving your banking relationship.

A valuable tip is to do all of your business banking with the same bank. Some will disagree with me, but I'm prepared to defend my position.

[Randy (SELA)]

Aldo,
Thanks for the info. I already have an LOC set up. That's what we used to purchase #3. I didn't think about using it for other things tho. Let me ask you something else. Should I have financed the house and freed up my LOC? I hate to pay all the financing fees knowing we're only going to keep it for a few months, but now my LOC is tied up. I'm beginning to think I made a mistake by not freeing up the LOC right away.

[steve-homefree]

Why would anybody think REI is a get rich quick scheme?

John Reed gets rich by poking holes in other peoples' get rich quick schemes.
Why couldn't I have been that smart?

[ZNICK]

Why would anybody think REI is a get rich quick scheme?

John Reed gets rich by poking holes in other peoples' get rich quick schemes.
Why couldn't I have been that smart?

I'm going to bite my tongue when it comes to Reed.

Anyway, to some, $50k would make them rich, hehe. To that person, it's a "get rich quick scheme". Anyone who's watched the show sees how easy it is to flip, right? :SM026:

Z

[Aldo]

Randy, sorry, but I somehow didn't see your question until just now. When I get here, I click to see "New Posts" which should present all of the ........well, new posts, but sometimes don't. That's happened a few times recently and I'm watching to see if there's a pattern or some other explanation........... Anyway, to your question

Yes, you might have done well to free up the LOC at the git-go if you needed to maintain your available credit. If not, using the LOC was the best and most cost-effective choice. In either case, it's done and there would probably be little value in playing with the financing if you'll be selling the property any time soon.

Here's a thought that could work for you in the future. When financing a 'new' property using your LOC, the purchase is, effectively, a cash purchase leaving the property unincumbered. Since you'll own it free and clear (again, effectively), pull a LOC using that property as collateral. The lender doesn't need to know that you'll be blowing it off in a few months. I'm sure you intended to hold it for a few hundred years, but got an offer you couldn't refuse.

[thepower]

http://www.flipthislawsuit.com/2006/08/10/samuel-leccima-of-atl-season-2-cast-real-estate-license-revoked

There is good reading material on the Atlanta side of the show & the show in general

[mike_mn]

Unbelievable. This Sam Leccima from flip this house season 2 seems to be a crook. He even duped A&E into believing he was a successful flipper. Now things are going to get tough for him. A long list of folks that have had money stolen to his Hospitality "Investments". And his RE license revoked for some earnest money and fraudulent transactions that never closed. It is such a shame that so many folks that play the part of a successful person are crooks. I guess it falls into my life rule that 90% of the population basically stinks.

[ThreeRiversREI]

I guess it falls into my life rule that 90% of the population basically stinks.

And the other 10% are here on Magic Bullets!:clap: