House 'Flipping' Skyrockets, Sparks Concern Over a Housing Bubble

nbc news ^ | 3-3-2016 | Reuters

[Citizen Zed]

I'm in the wrong business.

[DonaldC]

2008 redo.

[TexasFreeper2009]

You missed the money quote

“netting an average $55,000 per sale before renovation and transaction costs”

you have to subtract renovation and transaction costs from that number.

If you spent $50,000 on the remodel and $5,000 on the closing costs, you made nothing.

[factoryrat]

Buy homes at foreclosure auctions for pennies on the dollar, do some minor repairs, and sell to the next sub-prime buyer for a tidy profit. Or, rent them out for a tidy profit. Wash, rinse, repeat.

This is how it works in real estate.

[Uncle Miltie]

Oopsie.

Leading indicator of a bubble about to burst.

[blueunicorn6]

My Grandpa taught me,

“Whenever there is a good margin in a market, too many people will get into it and screw it up.”

[Dilbert San Diego]

How is this happening?? I thought they had tightened up mortgage lending standards, among other things, to prevent giving mortgages to sub prime people or for purposes of flipping. Have they backslid on such reforms?????

That said the market is whatever willing buyers and sellers agree on. And in some markets, including many on the west coast, Chinese buyers are buying real estate inflating the market with their purchases.

[MrB]

Indeed they have “tightened” mortgage lending standards to the point of strangling investment.

But, where there’s a will, there’s a way.

Probably using private money lenders, outside of the control of the government.

[Larry Lucido]

Are we in 2006? Let me check my calendar.

[Larry Lucido]

Plus you have to amortize the $30,000.00 you spent at Trump University.

Or the $5.00 you spent on that used book on house-flipping.

Either way.

[enraged]

Those flip shows crack me up. ‘Your house was worth 250, you put 60 into it, now it’s worth 310!’ Wow what a deal! Christina is hot tho’

[huldah1776]

The newest ads are shouting about “real estate crowd funding” and why not? The banks first did it with mortgages, then the banks did it internationally with credit card debt.

http://www.crowdcrux.com/top-real-estate-crowdfunding-websites/

[alancarp]

"...$55,000 per sale before renovation and transaction costs..."

Well yeah - BEFORE expenses.

They're making it sound like it's all profit, but clearly those costs reduce that $55K significantly... to the point that you've really gotta be watching the pennies to make something. It's certainly not a job for the faint of heart.

[Repealthe17thAmendment]

I just bought a house that had been flipped, and sold my old house to a flipper. As far as I'm concerned, both deals were worthwhile. On the purchase side, we bought a house that has been thoroughly renovated, and move-in ready. I don't have to spend my weekends doing odd jobs and projects (at least for now). Everything in the house looks good, and works.

On the selling side, we sold it for less than top dollar, of course, but we don't have to keep putting money into it to get it up to move-in ready condition, and we don't have to wait for an unknown period of time for someone willing to buy a fixer-upper, when there are already a lot of houses on the market.

The popularity of the TV shows have contributed to the availability of flipped houses, and it also brings more investors.

[Oatka]

The popularity of the TV shows have contributed to the availability of flipped houses, and it also brings more investors.

Somehow, this craze reminds me of this guy:

[sheana]

My brother does the......buy them cheap, fix them, rent them for awhile and when they become too much trouble, sell them. Has made quite a profit over the last 10 years.

[Svartalfiar]

The report by RealtyTrac found that home flipping in 12 active metropolitan areas last year was above a peak set in 2005, just two years before the U.S. mortgage market started to collapse, leading to a banking crisis and the Great Recession.

Correlation, not causation. If banks are giving out loans that people can't afford, of course those people are going to be buying houses for more than they usually would. House flippers have nothing to do with that.

"These sales artificially inflate home prices, making housing even less affordable for buyers and increasing the risk of a bubble," said Gardener.

What? No, they don't. Conducting repairs and improvements to increase the value of the home isn't artificial. It's a real value increase. And again, the home is only worth what someone is willing to pay for it. If the 'fake value' increased too much, people wouldn't buy these houses and they wouldn't sell. Most home buyers are willing to pay for this. All other factors the same, a 100k home that needs 50K of work isn't nearly as attractive as a 160K home that doesn't need work. Even though it costs 10k less.

It's only (arguably) an artificial inflation of value if they buy the house, don't touch/repair it, and resell it for more. But again, value is relative.

[Organic Panic]

You gotta have cash. Cash is king.

[combat_boots]

No.

CRA still exists and has moved into auto, too.