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House Flipping Commercials? Already?

April 12, 2012, 2:59 pm

Today on the radio I heard a commercial for a company promising to teach me the exciting art of flipping houses.  I could buy and resell houses up to three at a time in less than 30 days.

I guess I thought it would take a bit longer for this nuttiness to come back.  I do know some smart people who are buying undervalued houses, putting a bit of money in them, and putting them on the rental market.  Converting owner-occupied homes at the bottom of the market to rental properties makes sense to me, particularly since the ones I know are doing it with all equity.

However, I presume the folks tuning into the radio don't have that much equity, and anyway they were explicitly using the word "flipping" in the commercial rather than talking about rental income.  I wonder who is lending on this stuff?  I tried to refi my mortgage about 6 months ago on a 40% LTV but as a self-employed person it was a pain in the ass.  Who's financing house flipping?

(yeah, I know, the answer probably is "all of us, via Fannie and Freddi or some other dumb government program).

Tags: , ,
Category: Economics, Government
  • Matt

    Take a look at companies like Quiken Loans. Right before the housing market crashed, they and several other lenders were offering interst only mortgages. The idea is that the montly payments are just the interst, you aren't paying any priciple. I asume that the principle was to be payed in one lump sum at the end of the mortgage.

    They were advertising these instruments for people buying a primary residence, which I think aught to constitute fraud.

    However, this kind of mortgage makes comercial sense for someone with the means to flip houses as a primary source of income (such people do exist but I am not one of them). As long as the house can be re-sold for more than the house flipper payed for it in a reasonable amount of time, both the bank and the house flipper can profit.

  • Mark2

    You can still buy a house for almost no money down. You get a fanny loan with a 3% down requirement if you have the excellent credit rating of 680 and no bankruptcy in 3 years. You ask for 3% back from the seller to cover loan costs and can get a second loan for 2%.

    Nice thing is fanny will let you buy a duplex! Not sure if you can get a quad, but that is also a possibility.

  • Mark2

    Here is an article how to do a flip in 10 days from a Tucson real estate agency.

    http://insidetucsonrealestate.com/invest_fixer.html

    You can get trust loans in a private market outside of banks where the loan is for say 6 months @ 10%. A lot of people invest in the trust loans for the flippers via self directed IRA's

  • Ted Rado

    The stupidity of home buyers, with the USG egging them on, amazes me. There is a sure fire way to avoid house buying problems: 1) Buy a house you can easily afford. 2) Don't buy a house that you don't intend to live in for a long, long time. If you can afford the payments and don't need to sell the house, it doesn't matter if home values go up or down. You have a roof over your head at an affordable cost.

    The mischief starts when people start flipping houses assuming that prices will continue to rise. For the rest of us to subsidize this idiocy amounts to government sponsored robbery. I pay for my house. Let others do likewise.

  • John Moore

    The Phoenix are market is really hot in the lower priced homes. I suspect it's part of the world-wide phenomenon of capital seeking returns when interest rates are zero and all asset classes are suspect. Of course, if someone is teaching how to flip homes, then the home flipping market is probably already broken.

  • Dave K

    I noticed how many of the house flipping shows faded away after things went south but they've been popping up again on cable, along with a new one.

    Also saw a Lending Tree ad a few hours ago talking about record low mortgage rates and 5/1 ARMs.

    http://www.youtube.com/watch?v=RPr7pzywidI&feature=endscreen

  • Mark2

    I can understand 5/1 Arms, though I would do 7 years. If you use houses as an investment, you need to keep the margin low in order to get the best returns. if you put down 25% on a home and rent it out, in 5 years you will have about 50% of the equity in the home assuming payments and a 3% per year increase in home value. So in 5 years you want to refinance to pull out that extra 25% to buy a new home and rent it out too.

    If you have to refinance every 5 years to make your home investments work, why get a 30 year loan? You will just throw extra interest money away.

  • Mark2

    Something else to note, they always say buy low sell high. We might not be at the exact bottom of the housing market, but we are really close. This is the buy low time that everyone talks about. I see about another 5% drop in housing prices and then a slow rise. Rents in some areas are covering costs so you can get positive cash flow.

    Some commercial properties are probably better investments, but you have to put a lot of cash down (usually 25%). Government mucks around with homes,so even with the crisis we just had, so you can get one almost no money down.

  • elambend

    The only people I know doing something like this are able the arbitrage true cash purchases at lower prices and resell them to less patient financed buyers who pay a higher price. They typically buy short sales, which take a while to get to close. Also, when the bank does decide to close on a short sale, it's not uncommon for some to demand a quick closing. This knocks out a lot of financed buyers whose own banks can't move that fast, or who need to sell their previous homes to purchase the new one.

    The returns for people doing this are substantial. It will go away eventually, but not for a while. It's also a good lesson in how credit (particularly government backed credit) can distort market prices.

  • http://harries@free.fr blokeinfrance

    Real Estate speculation is as American as apple pie.
    I take as a positive that apple pie is back on the menu.

  • http://equipmentready.com/ Liz james

    Flipping homes works for a few majority, I mean those with bigger pockets. They will always promise you some heaven on earth but you will take sometime before you can resell the property. You may end up being broke or injuring your credit score; however, it works for some anyway.

  • Paul

    If they are charging for this, it could also be a scam. You send them your money, or worse, your credit card information, and then........nothing good comes of it for you.

  • Ted Rado

    Blokeinfrance:

    I don't mind if people speculate in real estate. I DO object to them being bailed out at my expense if they lose the bet. They get the profits if they win. They should get the loss if they lose.