One of my accountances is a professional house flipper. They claim to regularly make over 100k of profit on a single house in less that 3 months. Keep in mind they contract out all the manual labour.
The 1st step is obviously to find a house, preferably before it hits the market. Then, contact the seller’s agent and promise them that if they sell you the house for a good price you’ll go through them when you sell the house after having flipped it. At this point, the agent’s incentive is disconnected from the seller’s: If they can convince to sell off market, they’ll sell quicker, make the commission on a lower price but expects to make a much higher commission on the 2nd sale than what the 1st one would have fetched. The seller gets fucked.
Then, the flipper finds the cheapest contractor with immediate availability. cheap+available is usually a bad sign in term of quality. They have them do the minimal work to make the house “look good”. No deep electricity, certainly no plumbing, rooftop or foundations.
After a couple of months. Put on the market. At this point, you want to put it on the market at (original price paid+original agent’s fees+second sale agent’s fees+remodel cost+your sizeable margin) that ends up easily increasing the original pricd by 30%, sometimes more.
The buyer gets fucked too because they pay extra for shitty work. They’ll have to do more work on the house, both short term and long term.
But the ones who get really fucked are the other potential buyers : it’s super hard to find a house that wasn’t flipped, prices go up because everyone wants whatever the neighbors house got sold for, there’s even less contractors available
I’m convince flippers have a negative impact on society at large.
What’s preventing homeowners from buying and selling to each other directly? Why do we need real estate agents? (I ask as a mid 20s engineer who is probably never going to own a home)
This book covers some very valuable roles middlemen play: https://link.springer.com/book/10.1007/978-1-137-53020-2
> What’s preventing homeowners from buying and selling to each other directly? Why do we need real estate agents?
I wrote about this 8 years ago (was employed as a software engineer at a real estate brokerage at the time):
"I think that there are lots of marketplaces have sprung up via the internet, but as far as I know, the significant ones all offer products that have one of these characteristics:
* the consumer buys them often [for some definition of often] (airplane tickets)
* the product is fungible (books, cars)
* the product is relatively cheap (stuff sold on ebay, amazon)
Because a slight miscalculation in value, lack of market insights or poor salesmanship can lead to tens of thousands of dollars left on the table by the seller.
A chief problem with technically-mediated intermediaries is that rather than buyers and sellers being directly connected, they are connected through yet another, larger-scale intermediary. Amazon, eBay, and Alibaba are three such instances, and each has its own motivations and opportunities to distort markets.
Regulations, preventing the same intermediary from playing both sides of the transaction (in a pass-through mode, apparently, in the flipping case), fiduciary obligations, and of course, reporting, enforcement, penalties, and decertification for violations, are all highly useful steps.
The type of person that buys the flipped property isn't looking for a long term investment or hassle-free life.
What they want is the feeling of getting something shiny and new without spending a fortune on a properly improved building, even if it means tens of thousands of dollars in maintenance cost down the road.
This is something I've learned in the past year or so through e-commerce, and then mapping the behaviours of my customers onto family and friends that I know. A significant portion of the population enjoy spending money on shiny shit, and buying and getting something new is the end goal in and of itself.
The classical understanding that people will spend money to solve a problem after weighing the benefits against the cost only really applies to the population at large when finances are limited.
"Homes are a place to live, not an investment"
The more things change, the more they stay the same.
> I find it difficult to believe this is sustainable.
As someone who just got approved for a million dollar loan in the Bay Area earlier this year, and decided to let that approval expire, I feel the same.
But I still feel nervous about “timing the bubble” by delaying.
Here are my “non-bubble explanations” for housing value increases:
1) Investors who want something like a bond. If you park a million dollars in a rental, let’s say you got back $3,000 a month. That’s something like a 2.3% interest rate. Not bad if your other options are 0% or less.
2) Investors who want to get out of the dollar (or any other currency): maybe they don’t care about the rental income they just don’t want cash. They want something that will track or slightly outpace cash.
3) Inflation is real. It’s happening, and in cities employers will have to increase wages to match. This is already happening for many of us, when we negotiate salary it’s not just “how big is you grocery bill”, it’s “how much do you need to pay me for me to pay a mortgage”. If city employers keep keeping up and housing stock keeps staying low then the houses really will do have value for people who need to work in the city.
4) Short term rental investors: Housing stock is now competing with hotel stock. This has the potential to be much more than $3000/month of revenue, although costs are higher to realize that revenue.
5) Government assistance: at the moment the government is paying or deferring anyone’s rent who can’t pay. Which I have to assume is reducing supply. Who knows how long this can continue. But as long as it stays true, the gain stay real.
And here are my explanations for why the value might be DECREASING:
1) Government assistance will likely end soon? And bankruptcies both of renters and landlords should increase supply and decrease demand?
2) Work from home: got a real shot in the arm from COVID, especially in the Bay Area, it seems like this might be a structural change for many companies. VR won’t affect this until headsets support eye contact, but that seems poised to happen around the timeframe COVID becomes manageable. The “end of offices” seems to be increasing in probability which would massively change the housing demand in cities.
So I don’t know. At the moment I am having a hard time believing there is that much headroom in housing prices to justify their current “only upper middle class can afford to buy housing” levels. But I really do see an argument on both sides.
But with extremely low interests rates, it's far from clear that a flipper wouldn't mind holding a property 3 years. Perhaps there needs to be a slowdown term when they don't occupy it.
The table of rates on page 6 says they'll charge up to 80% of your gain on land held less than 4 months. It doesn't seem to cover improvements, though, so it's anti-land flipping tax not an anti-house flipping tax AFAICT.
This currency would be based on algorithmic appraisals of the intrinsic objective and quantifiable qualities that a particular piece of real estate had. The algorithmic appraisal would be designed to appraise the property for the same value over time.
When a seller wants to sell a property, an amount of currency equal to the appraised value is generated, and given to the seller.
When a home is purchased, it must be purchased using this currency, which is then destroyed.
This allows for several key differences over traditional home buying and selling. It creates a sort of limbo in which a home does not have an owner.
The first is that as a seller, you can have your funds immediately without having to find a buyer.
Second is that it moves volatility in housing pricing to a single value: The exchange rate of this housing currency.
Third, because the outstanding currency equals the total of all the un-owned property, it is likely to be a way to invest in the idea of real estate without actually owning any specific property at the moment.
The un-owned properties could be rented out to fund the operation of the system, to help provide funds to stabilize the market and exchange rate, and take care of operational expenses.
I bought a domain a few years ago to act as the focus of this idea.
REITcoin.com
Is anyone interested in going forward with this? I'm willing to sell the domain for the right price, or an equity share in the business behind it. I haven't had a chance to execute on it yet because I have so many other things that are taking priority.
The shares are publicly traded, and can be used to discount the rent or purchase price on other available properties in the union.
So you gain liquidity, diversification, and fractional ownership at the cost that the union needs to defend the total value of the tranche (so requiring repairs, not buying risky property), and it may be difficult to adjust the relative values of the properties in the tranche to reflect market conditions.
All of this sounds perfectly legal under current frameworks, and doesn't require getting an algorithmic appraisal perfect or creating a new type of coin.
The benefit of doing it algorithmically is that the algorithm can be updated periodically based on the time to re-sell so that it can take into account more diverse information.
As long as the appraisal is within 5% you're doing better than agent based sales, and you should get at least a 10% bump in value just for the instant liquidity factor.
I'm imagining a super fast drone appraisal process in which the entire house is scanned from every angle, and the condition of each part of the building is examined. Every facet of the property would be quantified, and objectively measured when doing the algorithmic appraisal. It could actually serve as a guide to what types of repairs will increase the value, and where maintenance is needed.
I see house flippers loving this system, so there is no need to restrict it to only homes in good repair. Contractors will be able to buy homes that need work, do work that actually increases the value as described in the appraisal system, then sell it back instantly when the work is done.
This is a great program. The ability to sell your current house and keep living in it while buying your new house is a game changer. It removes the need for contingent offers, which in many markets have 0 chance to get accepted.
Peter Bilmer's response in that thread is visually very clever, even if his politics are probably terrible. I'd like to know what the image at top right is. Some kind of startup accelerator?
> iBuyers have recently shifted “to a free-for-all, acquire at any cost strategy.” At present, both Opendoor and Zillow’s homes division are losing money in the process.
> “For some families, it may be difficult to compete, when they are trying to buy a house, with a company like that,” Quercia said, referring to iBuyers. “So if this was a widespread practice in some neighborhoods, it may create some concerns about a lot of the housing stock being owned by investors from outside of the community as opposed to households and residents.”
> The company, which is reportedly searching out a new $2 billion revolving credit facility, also announced this week that it is now willing to purchase the majority of homes in every one of its current markets.
> That would be welcome news for people like Alex Villacorta, the co-founder and chief data officer of ResiShares, an investment management company focused on residential real estate. “If they can get enough inventory flow, they’ll end up being a marketplace for investors,” said Villacorta. “We would be more than happy to buy in bulk off of them.”