Flip and Grow Poor
Many of you have seen the fun house flipping TV shows where someone gets in way over their head and losses their ass or the master "house flipper" who has made a cool hundred thousand dollars in 3 months.
The majority of "house flippers" should be called market riders. Simply because they're riding the real estate market to victory or defeat, not generating their financial future on their own. Either they'll spend too much money in the wrong neighborhood with too low of an appreciation rate for a loss or make a few bucks and dump it into their next investment deal with their fingers crossed. Eventually, when the market turns South, like it has, they'll no longer be able to generate income and most likely be stuck in a financial headache of some sort.
THE RAPE OF REGRESSION:
I cringe and cheer for the homeowner that dumps hundreds of thousands of dollars into his home in the wrong neighborhood. It's a great thing for the neighbors and can help turn a neighborhood around if it's become less desirable. However, more often than not, it's a terrible financial move.
The market value of a residential home is based off the homes in the neighborhood. If you are the most lavish home on your street, chances are that the value of your home is being pulled down by your neighbors. This is called regression in the real estate world and it's not your friend.
Although not so bad for a long term investor who has selected the right beat up, old neighborhood that's beginning to come back around, building a castle in a village is financial suicide for a short term house flipper.
THE COST OF FLIPPING:
The cost of buying, fixing up and selling a home is tremendous. real estate agent commissions, financing costs, escrow, title, notaries, appraisal, home inspections, termite inspections, repair work, cosmetic work, etc, etc...
A professional "house flipper" will calculate the cost of buying, fixing up and selling to help him/her determine whether or not there's any money to be made. It's hard to believe that someone can make money by flipping residential in just a few months, but in the right neighborhood and the right real estate market, anything is possible.
RESIDENTIAL VS COMMERCIAL REAL ESTATE:
Residential real estate investments are a good tool for tax shelter and a good way to generate appreciation over the years. The value of a commercial property is determined by the cashflow it generates today. Therefore, it's a much more lucrative tool to flip short term. Lowering expenses with energy efficient investments, changing the tenant mix to better suit the current community can have a dramatic effect. Sometimes, all that's needed is to simply raise the rent to the current market price.
Written by, Evan T. Little
Realtor®, EcoBroker®
Volkl Investments Inc.
949.939.9687 phone
evan@volklinvestmentsinc.com
My other blogs:
Going "Green" in Orange County
Orange County, CA Community
Real Estate in Orange County, CA
4 comments:
Its an interesting article and certainly guides in buying or selling house.
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