Dispatches from District 48
I just heard a radio commercial today urging listeners to learn how to flip houses to great profit with absolutely no capital or down payment required. What a great idea.
It's almost as good an idea as selling interest only mortgages to people who AREN'T flipping houses for a living.
Wait, didn’t you hear Coyote?
The Lefts says none of the Fannie/Freddie mortgages went belly-up, so it’s ok.
Everything will be just fine.
Oh yeah, I heard that one too. I particularly liked the "One guy made a large sum of money...." part of the ad.
I am very happy for the house flippers in my neighborhood. I don't know if they do it with no money, but they tend to buy the run down/trashed foreclosed places, fix them up by putting in about 50K and then selling them probably bringing in an additional 50K on top of that.
I don't mind. It gets private investors to fix the derelict home problem, and increases the beauty of my neighborhood, and actually increases the value of my home.
More power to them I say.
Zero down and low cost ARM loans are still happening. Never went away in fact. The bank reforms structured it so if you need a Fanny loan, your credit ain't great, you don't have much money,they are easy to get. However if your credit is moderately good - though not stellar, and you want to put 10% down, you end up going through heck and a half to get a loan.
Basically the new rules hurt the middle class in favor of the lower middle class, and upper poor, who will just get in trouble again in about 4 years.
Well, we have the A&E Flip This House star Armando Montebungo saturating the morning infomercial channels locally telling folks how they can do it too.
Given the per deal money he talks about, it seems extremely implausible that he would spend his time teaching others and not spending his time doing it with his own company. But then again, he is not trying to pitch to thinking people.
A good kick butt libertarian who maintains a "Guru Rating" list, along with a "Guru BS Detector" how-to here:
He is very knowledgeable on the topic of RE Investment, and gives solid advice, but I find his writing to be more of a "flow of thoughts" vs tightly organized / written, and it does come across as pompous at times.
Many of the cable TV shows that do a remodel or fix up, sometimes to sell, sometimes not (e.g. Love It Or List It - my wife's favorite) almost invariable give erroneous (and/or disingenuous) figures:
- They give estimates of values (e.g. final value, initial value), without a sense of time frame (2006 vs 2009 vs 2012 all very different markets) or location (what city, what neighborhood).
- They don't tell you how the show subsidizes the work, giving false idea of true “cost”:
-- I read article where Holmes charges owners 10%
-- I suspect others give free labor
-- Sponsors may/likely give free/discounted materials/services for placement/promotion
- Their “profit” is poorly defined:
-- Profit = estimate final value, less the “cost”, and less estimated initial value of the building
-- They ignore carrying cost, taxes on sale, transaction costs, value of owners' labor, moving costs, etc.
-- They ignore risk: of finding costly maintenance/condition issues, ability to find tenant on timely basis, finding a “good” tenant, the illiquidity of the investment during hard times, the possibility of a major downturn in price at the time frame they want to sell, etc... all vs alternative uses for their money.
But, hey, its entertainment, not meant to give people the real low down, right?
I'm sure the "show" they put on at the hotels they run these sessions at are equally entertaining!
"Zero down and low cost ARM loans" are not what I was talking about.
Quicken Loans and others were advertising mortgages where your monthly payments cover interest only, with NO principle component.
This sort of loan would be great for someone flipping houses for a living as you don't have to cover any of the loan principle until after you have flipped the house.
For a first time home-buyer with low income (the group they were targeting the adds at) these loans are a recipe for disaster. When exactly does the loan get payed off? I can't imagine any bank underwriting such loans with no expectation of ever recovering the principle.
Agreed - just pointing out, that things are almost as bad as they were, sans maybe one loan program that you described above for below prime borrowers.
And not allowing the 1% interest only loans, has shut a lot of people out of the flipping market which has actually made it take longer to get these houses restored. The current crop of flippers are actually doing a great service, as I mentioned above, fixing up homes destroyed by unworthy owners they are increasing home values and reducing blight, and even crime for the whole neighborhood.