In defense of flippers

Blogger's note: We welcome contrarians on this blog -- they are the raisins in the pudding, the blueberries in the muffin, the straw that stirs the drink. The consensus here, as expressed by Jaded, is that "flippers are the scum of the earth."  We liked the contrarian response from Ace so much we reprint it here:

"Yeah, it is really terrible when someone comes into your neighborhood and buys the worst house on the block and fixes it up. 

"It is really terrible when they displace the trashy family of 10 who sell pot and let their kids tag the neighborhood.  I really miss having five broken down cars on my neighbor's front lawn and three pit bulls barking all night.  I miss looking out my window and seeing a live action episode of 'Cops' with a drunken, shirtless fool throwing a hubcap at his wife.

"I really miss them.  I wish that stupid flipper wouldn't have fixed up the house and sold it to that 'Leave It to Beaver' family with a sober dad, a soccer mom, and kids who spend their time studying. 

"I am looking to score some weed and attend a dogfight this weekend.  Where have my neighbors gone?"

Thanks, Ace.
Your thoughts? Comments? E-mail story tips to lalandblog@yahoo.com.
Photo Credit: AP

Comments

[Don]

That's not flipping, that's working. There are plenty of people who buy a house, do the real work of getting it fixed up and then re-sell it that are perfectly fine. Then there are the people who buy something, do some minor cosmetic fixes (if that) then think that they're entitled to a 25%+ profit. Not to mention that most of them are morons who buy high to begin with. So they end up buying from that hard-working repair couple and then the house goes into disrepair, the pool in the backyard starts breeding west nile mosquitoes and squatters break a window in the back and start selling drugs out of the house. Yeah, we love what they do to the neighborhood.

[Ed]

Ace - Where the hell do YOU live?!!!! OK, you live in a barrio. Forget that flippers are part of the menu for the current mess. And since the Beaver family moved in, Mr. Beaver's ARM reset, he couldn't make the payments and his house was repo'd. Mr. Hubcap isn't looking so bad, now that the vacant house in your ghetto has turned into a crackhouse.

Any bets Mr. Ace is/was a flipper?

[SC Phil]

Ace makes a great point. I'm not sure why everyone hates flippers so much. Perhaps it's because HGTV makes it seem like anyone can do it, and the result is a lot of bad rehab work. So shouldn't the hate be directed at the instigators instead of the people who caught the wrong end of the speculation cycle? The real flippers, aka the ones who have been doing it longer than 4 years, are a great help in the revitalization of older neighborhoods. So what if they are out to make a profit? Isn't this America?

[Ben Brown]

Buying homes and fixing them up and selling and/or holding is both a legimate career and a practical investment vehicle. But this spec/bubble/flip crap turns real estate into a handbag full of rainbows.

[are they crazy]

Ace - you act like flippers are doing this as a community service. If they wanted do help communities, they could work for Habitat for Humanity. They do it to make a quick buck. It's reported that many of them lie that it is their primary residence to get better loan deals and many have been expecting huge profits quickly. When they abandon the houses because there's no profit or they rent out to any breathing body, we'll see how much you like your new neighbors. We'll see how many of them continue flipping when there's little to no profit to make.

[Keith]

Well like the article said, rampant speculation drove a lot of the madness, but then again "flipping" was the national rage. There are TV shows about it! But the flippers don't really deserve much pity, they were investors and some win, some lose. Timing the market is everything. It wasn't necessarily the "worst" house on the block. The Beaver family's gotta be bummed right now, everything's going to ####, the ARM is broken, Mr. Beaver's "Refi now, ask me how" t-shirt is in the trash, won't be long until the hubcaps start flying again and the bottles of Sailor Jerry start piling up. Maybe they'll be nicer hubcaps.

[Sam]

I do not flip, yet every rental I have bought I have improved substantially over the condition I bought it and maintain in even better condition. You morons who do not want a bail out or are anti investor because they made money, please take a hard look around your neighborhood about a year from now when you have the only livable home on the block and you are surrounded by what Ace described above. That is all this is going to be left when this money leaves LA for better returns.

[Ace]

'Ace - Where the hell do YOU live?!!!! OK, you live in a barrio. Forget that flippers are part of the menu for the current mess. And since the Beaver family moved in, Mr. Beaver's ARM reset, he couldn't make the payments and his house was repo'd. Mr. Hubcap isn't looking so bad, now that the vacant house in your ghetto has turned into a crackhouse.
Any bets Mr. Ace is/was a flipper? '

I live in North Hollywood, the NoHo Arts District... not sure if you would consider it a barrio. A flipper cannot be responsible for the buyer getting into a stupid loan and buying a house they cannot afford.

I am not a flipper... I only dream of being a flipper. I could never do it though. I take way too long to make a decision and could spend days trying to pick the right carpet. Also, I would have a hard time sticking to a budget and would price my flip out of the market.

I do know a lot of flippers and developers. I just met a retired gentlemen last weekend who flipped 2 houses on the street that he lived for the last 20 years. He was so proud of his work and how the neighborhood (Echo Park Area) is improving. He improved his own street. How can you think that he is scum?

[speedlet]

Flippers are simply agents of the market. Like any other kind of speculator, in a normal marketplace, they assume risk and reap return. Nothing wrong with that.

But the converse is also true: they reaped the return, so they should also be responsible for managing their risk. Inevitably many of these people will be walking away from their "investments", leaving a financial mess for the rest of us taxpayers to clean up.

[problemWithcaring]

Yea I am with Ace.

I loved it when a carpet bagger predatorily moved into my sister’s neighborhood in the Valley to capitalize on other people responsible behavior. I REALLY love it when they DON’T move in. I love it when they just show up every few weeks to barely miss their contractor. Mind you, said contractors never “rehabbed” the property much, just external paint and stonework, but he managed to leave tools and cement spilling into our drive-way and all over the already browning grass.

I love how the neighborhood kids knew no one was living there due to the piles of unopened offers to refinance from Mortgage Lenders falling out of the mailbox, so they took to spray painting the garage after every time the flippers stopped in to repaint it.

I also enjoyed how they copied another’s neighbors unique house color, converted the house’s only garage to “family room” summarily taking 2 parking spaces off the street, and how they now, can’t sell the 874 square foot “fixer” because its still too overpriced.

I told my sister about Ace and now she isn’t worried. She is sure now that the entire cast of Leave It to Beaver will come out of the retirement to squatting.

[Todd in WeHo]

I'm all for flippers who buy a property and truly renovate it, but I've seen way too many flips in the past 5 years where all they did was slap some new white paint on the wall and raise the price $100k. Sorry folks, that ain't improving anything and it certainly isn't deserving of a windfall profit.

[MyLessThanPrimeBeef]

There is nothing wrong with being the scum of anything, or just scum in gereral. We have to realize everything is here for a purpose and we are all interconnected.

I suppose if there is a reason to not like flippers, it is this - they lack commitment. They are like fashion - here today, gone tomorrow, always into the latest trend. You hear them in good times, but they are never around in bad times. You sense they are shallow, never any deep faith in what they are doing.

Hardcore flippers - I guess they are to be tolerated. But the weekend/casual flippers, they are the scum of the earth - not that there is anything wrong with that.

[CP]

well, i think, first of all... many of you flipper fans should think about the simplified terms in the picture that ace paints... i'm sure there are about a million degrees between "drug-dealing, hub-cap-chucking dogfight fans" and the "leave it to beaver family"... in any case, the term FLIPPER itself is a simplified stereotype, so of course that supports loads of clichés and short-sighted viewpoints. if any resident is responsible and improves his neighbourhood in any way, that's definitely a positive investment... whether you find it necessary to call that "flipping" or not. and to answer "SC phil" - yes, this is america, but that doesn't mean that the bottom-line is about turning a profit.

[Cal]

My biggest problem with flipping isnt flipping per se, its the lack of adjustment from the market to flipping.

As an example, lets say I have an envelope that I bought for a nickel.. I put a dollar in the envelope and I sell it for 1.05... people start thinking that envelopes are worth a $1.05 because they dont properly account for what went into that envelope selling for $1.05.

Apparaisers are the check and balance in this situation but they dont make the proper hedonic adjustments (they are trained and supposed to, many times they lack the proper information and more times they are just lazy) so when a house without tons of improvements gets compared to one without it still gets a higher price. A lender lending his own money wants to be sure of the collateral value he is lending against, this is clearly not happening to the proper level.

I think there are "flippers" which are speculators and rehabbers who are not, I think you can rehab in any market, you can only flip in certain markets. Lucky for most flippers buyers tend to trust their realtor (who isnt going to discourage them from overpaying) and not notice quality of work so they have been getting away with flipping much farther along in the market than they should.

[TrojanDLA]

What's wrong with "flippers"? Seriously. They are no different than the next person who takes advantage of the opportunities presented to him/her. Bank says, "here's a 100%LTV loan, knock yourself out". What, we're supposed to turn that down? Puuleeeze. Take that money, buy a home, sell it 6 months later. If it's profitable, great! If not, then the flipper loses his shirt and declares bankruptcy. The flipper doesn't get off scott free and suffers the consequences of bad credit, etc. If the bank didn't give the flipper that "free" money, the flipper couldn't have bought the house. Blame the banks for shoving free money down our throats with the incessant advertising of "get a loan now!!! It's the easiest decision in the history of mankind!! It costs you nothing to get a loan, and when interest rates drop, we can refinance you no closing costs!!"

[RichW]

Sam said: "You morons who do not want a bail out...", ummmm, Sam, apparently you must be one of the morons who took out a unsustainable loan then cried a river when the market went south and prevented you from flipping a home. Perhaps we can have a retroactive bailout for all the speculators (oh excuse me, I meant "investors") who lost their shirts when the tech stocks tanked in 2000-01. While we're at it, how about a bailout for all the gambling losers in Vegas ? Man, you need to get a clue !

[Confused]

I'm not sure Ace is a contrarian. I thought this blog was dedicated to the bubble, not to pointing blame at others who may have benefited from a raging (irrational) housing market. I'm also not sure who if anyone is to blame. Not the flippers who thought they could make an easy buck or the family that overextended themselves to purchase a home nor not the lenders who gave out credit to anyone who could breathe. Although I do despise the fraudsters like David Larheah of the NAR who incessantly cheerleaded the RE market in the face of logic.

However, there are certainly idiots in each one of those categories. I have no sympathy for them and in fact revel in their pain. If someone was arrogant enough to jump in to this market and got burned, they have nobody to blame but themselves.

Stop whining about who's to blame, some of you sound like a bunch of socialists preaching entitlement (although I'm sure if many of you could have timed the market and made a buck, you wouldn't be here complaining). Instead you should rejoice in the fact that natural selection has taken out the idiots and when the pendulum swings it will be us who will reaps the rewards.

Now if the gov't initiates any form of bailout, I would be seriously pissed off and would be pointing a finger or two.

[jb]

The flippers that I see on TV make 100-200k per flip in a few months, with little training, and they often hire out any real skilled work.
Oncologists with 20 years training make less.
The flipping industry will be flooded with shoddy work, often hard for the buyer to detect...... it is simply buyer beware!

[jaded]

flippers didn't confine themselves to fixer-uppers. They were also the ones buying up new houses on spec, fueling hysteria among legitimate home buyers who had to win a freaking lottery to merely get a chance at buying a new home.

scum.

[Phyllis]

There are two kinds of flippers: those that make the big change and often do a good job and those that buy a home, paint & replace flooring. When the market is escalating, ANYONE can flip and acutally not even do any work to the home and the appreciation will make them money.

Every time the market stumbles, many of the "flipper" get left holding hte bag (like musical chairs)

[Randy Adams]

There are renovators and then there are flippers.

I remember a nice Craftsman house in Silverlake that I had been admiring for several years because of its good lines, relatively original condition and three car garage topped by an also Craftsman apartment. When it went up for sale (in about 2004) I had my broker friend call to arrange a showing because even though the price was a little scary I was very interested in buying it. She made an appointment. We met at the house at the appointed time. No show from the listing realtor. She then called him and he claimed that the appointment was for two hours later. Honestly, I was irritated by the listing realtor's conduct and I sensed something rotten. I told my broker friend (who had driven in from Woodland Hills) to forget it.

Well, the house sold pronto and then it was back on the market inside of four months, priced $250K more than before. I attended an open house. The work that had been done? The three very nice and correct wooden Craftsman garage doors had been discarded and a useless veneer of red brick had been laid down on the driveway. I went through the house including the basement. The galvanized plumbing was untouched and there was a retaining wall with a significant crack in it. The rafters rotting at their extremities under the eaves were still uncorrected. None of these pricey problems had been addressed but yet this seller -- a realtor (gee, I wonder if it was the former listing realtor?)--felt he should "earn" $250K for his four months of minimal "improvement."

Of course, he was correct as the house ultimately did sell to some poor soul probably unaware of its recent history. But you can't convince me that the flipper performed any function beneficial to the neighborhood at all. The people who bought it got themselves a potentially lovely property with some deferred maintenance at too high a price. Hopefully they stay put until it finally makes economic sense.

[Susan]

"I do not flip, yet every rental I have bought I have improved substantially over the condition I bought it and maintain in even better condition. You morons who do not want a bail out or are anti investor because they made money, please take a hard look around your neighborhood about a year from now when you have the only livable home on the block and you are surrounded by what Ace described above. That is all this is going to be left when this money leaves LA for better returns."
Sam

Why be so defensive by being offensive? Flippers (ok, you're not one of them) also drove the poor further and further out into the boondocks. The working poor need affordable housing just like everyone esle.

Flippers also drove out professionals with household incomes of $100,000 because the thought of working all the time to make mortgage payments on a cracker box was ludicrous.

[AK]

"Oncologists with 20 years training make less."

Maybe you should change your career and become a flipper;-) Plumpers charge $250/per drip, dentist $700-1,400/crown, Wallgreens $1.49 / m&m's, god forbid you'll need a heart surgery ................ I guess everyone that makes more than minimum vage is the scum of the earth. But i'd rather be a rich scum than poor whiner.

"Confused" and "Ace" are 100% correct. So stop your whining, everyone has the choice to be and do what they want with their lives.

[Buzzed]

Confused? Sounds like a voice or reason to me. It's hard to watch tv shows that show flippers pocketing a cool $90,000 for doing a week's work, shoddy or otherwise. But then, it's hard to hear about the Home Depot CEO pocketing $gillions for running the company to the ground. What does any of this have to do with an irrational housing market? It's the easy credit and greed that drove this market. Flippers were just interlopers making hay. If they were greedy and got overextended, now they pay.

[TAY DIGGA]

I understand some of the consequences of flipping, but what I noticed in some of the responses was a hint of classist or even racist undertone. Be careful what you think of others simply because they choose to exercise their right to park on their lawn--who cares. And its sad but Aces description somehow got tied to a barrio, look at his description and tell me why that couldn't have been just neighbors who don't uphold the law. We all know what race of people live in barrios. But you noticed no one addressed it. Sounds like Cosigners to me.

[Jane]

""I am looking to score some weed and attend a dog fight this weekend. Where have my neighbors gone?" ACE

I'm so mad I didn't think of that first.

My gosh, that's way funny. That's what I said about Atwater. Now I have to go all the way to Van Nuys...I sometimes hate how the "eastside" has gotten all shiny.

Though I do appreciate that wine bar, Vermont, Tiger Lily, Green Leaves, Electric Lotus, Tantra...WTC. I like shopping, drinking and eating it's very relaxing.

It helps with my art.

Remember the old days.

Remember when there used to be hookers all the way up Sunset.

Remember when on Hollywood/Vine people would offer you drugs at 2pm?

I remember getting out of school changing out of my uniform and trouble would be right there.

Do any of you remember the Onyx (the 2nd one at Vermont around Hollywood, I didn’t remember the first incarnation)? It was a coffee shop that was open all night. You could sit there and complain about all kinds of things (pre the internet being the beast it is now,) do you remember debating with people in person? That was fun.

Across the street from the Onyx back when I was in high school one of my friends got robbed not for his wallet, not for his car, but for his hamburger from Fatburgers...now sitting in the old Onyx spot is Figaro a French Restaurant. I always get a mocha and a croissant; they have these very big cups...one of my old friends saw me sitting there and looked at me like I was a traitor.

Some people need to let it go. The 90s are over, heck the 00’s are almost over.

You know where people hang out now? At Coffee Bean and Tea Leaf in the parking lot of Albertsons.

At least it’s safe and drug free.

Jane

[investorguy]

What bunch of pathetic whiners and board-brush painters some of you are!

Yes, there are bad flippers. Yes there are stupid flippers. Yes there are bottom feeders. But those are the exceptions -- just as in ANY profession. Last time I checked, it wasn't illegal or immoral to make a profit on your work. But not everyone has the balls or foresight to do what we do. We sweat out loans, delayed schedules and slow sales. We make money on some deals and lose money on others. We take big risks, and we sometimes reap big rewards. Welcome to America!

Most of us are proud professionals with high standards, taking crap houses and rehabbing them into beautiful homes others are proud to own. I NEVER do any rehab that I wouldn't happily move my family into.

And just for the record, those of us who do this professionally watch those HGTV and TLC shows because many of the flippers on them (with the exception of the pros on Flip This House) are such incredible idiots that we love to laugh at their mistakes.

[investorguy]

Susan: you accuse flippers of "driving the poor out into the boondocks." How? Because someone sold their old house to a flipper? Because a flipper raised the value of a property? There's no Constitutional right to live near the beach, on the west side, or in a loft downtown. Everyone makes choices. Live where you can afford to. Rehabbing a property and making it worth more is not a crime. Leaving a property as an eyesore when someone no longer wants it is.

[investorguy]

Typo alert: that should be "broad-brush" not "board brush." My bad.

[Ace]

Susan said 'Flippers also drove out professionals with household incomes of $100,000 because the thought of working all the time to make mortgage payments on a cracker box was ludicrous. '

What? You really believe that? That does not make any sense. First, a flipper can't drive out someone who already owns a house.

Second, if you are talking about driving out people before they even move in, flippers did not keep out professionals that make $100k. The professionals that make $200k kept them out by willing to pay more for the housing.

People will continue to work all of the time to buy cracker jack houses. Why? Look around. There are very, very few areas of LA that are a good place to live and with good schools and a whole lot of families that make over $100k that are willing to buy them.

[Ace]

'And its sad but Aces description somehow got tied to a barrio, look at his description and tell me why that couldn't have been just neighbors who don't uphold the law. We all know what race of people live in barrios. But you noticed no one addressed it.'

Actually, I am embarrassed to say that I have never heard of the term 'barrios'. I had to use dictionary.com to find out what it meant!

If you read the guy's post, he accuses me of living in both a barrio and a ghetto. I admit that NoHo isn't Beverly Hills but it isn't that bad.

[Teresa Rothaar]

Ace does make a valid point. The house two doors down from me was owned by a very old woman who'd lived there since the 60's. She developed Alzheimer's disease. After an incident where she left her stove on and almost blew up the whole block, she was put in a nursing home, where she (mercifully) died a few months later.

Her estate is worth nothing, her medical bills having skyrocketed in the last year of her life. The house was in need of a complete rehab, as she couldn't even take care of herself let alone that house. Her family couldn't afford to make all the repairs to it to make it sellable as a "ready to move in" home. Meanwhile, the medical collectors were hounding them night and day. They had to sell that house as quickly as possible. They sold it to a flipper. He spent about two months having the place redone, then sold it to a young couple just starting out (it's small, only about 1,000 square feet).

Yeah, he made a profit off of it. SO WHAT? It was an honest profit. He didn't rip anyone off. He fixed up the house and sold it for fair market value.

Bottom line: With the kind of work that house needed, the only kind of person willing to buy it was an investor. The vast majority of regular homebuyers want to buy houses that are done; they want to buy houses where all they need to do is bring their furniture and turn on the utilities. They don't want to buy houses they need to spend $15,000.00 repairing. They don't want to buy houses where they'll have to live in a construction-site like environment for months while all the repairs are being done.

There's not a darn thing wrong with what that guy did.

[Enlightenment]

I flip this in your direction you house flipping scum! All house flippers deserve to burn in finance hell!

[Hula Girl]

Isn't every homeowner a variation of a flipper? We all hope to build a nest egg, increase our equity, sell for a profit and "flip" our house for a bigger, better house or retirement. The flippers just do this in a time-compressed fashion. Any one who says otherwise -- is probably a frustrated renter.
And no, I'm not a flipper, but I wish I was...

[Jane]

With Ace I didn't even think he was describing barrios.

I thought he was describing the Valley in the 80s and 90s. I have a problem. I'm prejudice against the 818, but I'm worknig on it. I'm in therapy.

The cool place to hate is now the 909, so my prejudice isn't even fashionable anymore.

Jane

[Randy Adams]

While I think their cumulative impact on the local housing market has been negative, I don't argue that flippers had the right to do what they did. BUT be fair. When the music stops, the flippers who were unlucky in their timing or overly greedy should have to suffer the full monetary consequences. They made the gargantuan gains during the boom; they should have to suffer the gargantuan losses when the boom busts.

[Anthrodiva]

@ The problemwithcaring

I am not so sure that converting a garage (dedicated to housing cars) to a family room (for housing people) in an 874 sq ft house is such a poor choice.

[Jane]

"I admit that NoHo isn't Beverly Hills but it isn't that bad. " Ace

It is that bad. You need to move right now. If something were to happen to me right now and I had to live in North Hollywood I think I would have to be hospitalized.

I don't think it's an unsafe place, just mindnumbingly dull and filled with theatre people.

Who does theatre in LA? How stupid are you to do theater in Los Angeles? I know they are trying to turn it in to an artist enclave, but it always reminds me of the Eagles Greatest hits album or even better like when your Dad gets you sort of what you wanted for your birthday, but not exactly.

You gave him explicit instructions and told him where to get and how to get it and yet he still manages to confuse the Barbie remote control car with some boy remote control hotwheels thing and then he tries to tell you it's the same thing.

No it's not the same. God darnit it's not the same.

I'm just smiling because I don't want to be a complete jerk of a kid and you are taking this back and getting me what I want.

Go back out there and get me my Barbie car!!!

Well that to me is North Hollywood.

Jane

[MyLessThanPrimeBeef]

Actually, the greatest hate springs from the greatest love.

So, maybe Jane is secretly in love with 909 but is afraid to confront it.

Me? I just mildly hate people, no greatest love here, who constantly perceive the world in terms of things being cool, trendy and fashionable.

I suppose that's one more charge to be thrown against flippers - they are shallow.

[MyLessThanPrimeBeef]

Second, if you are talking about driving out people before they even move in, flippers did not keep out professionals that make $100k. The professionals that make $200k kept them out by willing to pay more for the housing.

------------

The professionals who make $200K, if they are smart, shouldn't be outbidding professionals who make $100K.

Instead, they should try to find bargains from among the neighborhoods of professionals who make $300K.

More likely though, it was the professionals who make $50K who did the outbidding in collusion with subprime leanders.

Still, it did not help when flippers making $500K came in and topped everyone else with all-cash offers.

[Ace]

Jaded said 'flippers didn't confine themselves to fixer-uppers. They were also the ones buying up new houses on spec, fueling hysteria among legitimate home buyers who had to win a freaking lottery to merely get a chance at buying a new home. scum.'

I can't believe that someone would actually think this is wrong? Let's see, buying a product (in this case, land) for a lower price and then re-selling it to someone else for a profit. Isn't this the business model in EVERY FRIGGING BUSINESS?

Macy's buys clothes and then doubles the price to sell them in their stores. Ralphs buys food and then marks up the price to sell it in their stores. Hell, even my grandmother buys crap from rummage sales to mark up and sell on ebay.

They are not scum. They are capitalists. If you don't like it, I heard that China has pretty cheap housing.

[ab]

flipping is just another job, and if you can do it successfully more power to you, it's not the flipper who is the problem but the borrowers AND the lenders, if you put zero down on a $600,000 house with an option arm and you choose the minimum payment and thus had a negative amortization in a declining market what do you expect? same with any of the arms that people got into knowing they would reset to a higher rate, who's fault is this?

[Sam]

I got a shocker for you, the profesionals are all moving out of LA. I am now in the process of renting out a house in CO and every other call is from CA. A professional that wants out, when a dump in Downey is valued at $600K ti is time to move.

[#4]

I'm with Ace. What people ignore is that the prices set by what market will bear. So if a flipper puts on a fresh coat of paint, and some unwitting person goes an buys it for 100k more than the flipper bought it for, I am more apt to blame the buyer. Capitalism has room for idiots on both the supply side and demand side.

[MyLessThanPrimeBeef]

Not every tax driver jumps into the frenzy of buying and selling clothes, trying to take business away from Walmart.

Not every shoeshine boy tries to elbow pass another shoeshine boy to lay claim on some prime beef iin order to flip it.

True, nothing wrong if they do. But why don't we see that?

There is something unsavory about these flippers: the fair-weather nature and the low barrier of entry into the folly of their chosen fad which is flipping (we are not talking about lovingly and patiently restoring a craftsman here), the rush to be ahead of the herd and the rush to be out of the tiny exit door, and the utter lack of commitment to stick around during the inebitable bad times...

The suddenness with which they emerge and the profusion in which they multiply during a bubble, and only during a bubble as a matter of fact, remind one of vultures converging on a dead carcass or sharks and piranhas to a piece of bleeding flesh.

[jaded]

Sorry, Ace, houses are not shirts. If Macy's sells $7 shirts for $50, that's their business, because I can go to Target and get it for $7--its real worth. My ability to purchase an item at a variety of prices--depending on its quality and demand is capitalism. Also, I can live without buying another shirt.

Causing a false shortage in a necessary commodity (OPEC and the oil embargo, anyone?) and reaping the financial windfall is theft--not capitalism.

[TruthHurts]

The real issue with flipper scum is that the tax law nicely advantages them thanks to their lobbying. You're getting better tax benefits flipping houses every couple years than you are being a nurse or teacher. That's indefensible.

[jb]

I still think that most flippers have enjoyed a huge profit, great career, etc.

However, I think that all would agree, flippers included, that there should be no bailout for those who lose money in the process. (I think that a tanking of real estate would be great for flippers, sort of like a restart where they can then make profits again, seems sorta maxed out now)

[investorguy]

jb: I agree. If I make a stupid loan, that's on me.

TruthHurts: I know several teachers and nurses who flip. We get no more tax breaks than anyone else... unless you are mistakenly assuming that we all move into the properties we buy then take advantage of the $250k/person exemption. You can only do that every two years.

If so, get over it. It's legal. It's profitable... and every word of your post oozes sour grapes that you couldn't figure out how to do it.

I cashed a 6-figure check from a flip today -- what did you do?

[Teresa Rothaar]

Jaded writes:

---------houses are not shirts. If Macy's sells $7 shirts for $50, that's their business, because I can go to Target and get it for $7--its real worth. My ability to purchase an item at a variety of prices--depending on its quality and demand is capitalism. Also, I can live without buying another shirt.---------

Likewise, if 1,200-square-foot row houses are being sold in CA for $450,000.00, you can go to another state and get it for $150,000.00--its real worth.

You CAN purchase the same item at a variety of prices, which all of the L.A. expatriates commenting on this blog have done.

Ace writes:

---------Let's see, buying a product (in this case, land) for a lower price and then re-selling it to someone else for a profit. Isn't this the business model in EVERY FRIGGING BUSINESS?--------

Yes it is, but the New Left socialists think it's WRONG to make a profit, unless they are the ones making it, of course.

No. 4 (Who is No. 1? You are No. 6) gets it:

-------if a flipper puts on a fresh coat of paint, and some unwitting person goes an buys it for 100k more than the flipper bought it for, I am more apt to blame the buyer. Capitalism has room for idiots on both the supply side and demand side.--------

Agreed completely. I DO NOT feel sorry for the morons paying $450,000.00 for THE SAME DAMN THING that can be bought here in Philly for $150k or less.

Everyone who bought during the boom, and everyone who is buying now, has/had the choice of saying NO. There are no barbed wire fences, no armed guards, no vicious dogs, no guns being held to the head at these home showings.

[Rich]

I agree that the flippers have actually saved many homes, have created a whole industry that improved the quality of life in most places they invested in. In earlier eras there was no home refurbishing mechanism and aging houses in a neighborhood would be abandoned to the low-income buyers or slumlords.

The problem with flippers in this cycle is simply that the careless granting of credit encouraged them, like their buyers, to overreach. We need flippers, and in the future after real estate recovers it would be beneficial to everyone if the mortgage industry would come up with better investment-oriented products to recognize the special needs of investor-renovators (like no mortgage payments for 3 months after closing with a sufficient down payment...)

[Jane]

"I DO NOT feel sorry for the morons paying $450,000.00 for THE SAME DAMN THING that can be bought here in Philly for $150k or less." Teresa

You keep telling yourself that LA and Philly are the same. No one runs away from Philly and hides out in LA.

Jane

[Teresa Rothaar]

Investorguy, the people bashing flippers seem to think that all one needs to do is slap on a fresh coat of paint, plant some pansies outside and arrange the living room couch at a 45-degree angle to sell a house for $100k more than you bought it for.

Now, that was the case during the height of the bubble frenzy, but it's not now, and in fact it hasn't been for awhile.

The flipper who sold the house on my street worked hard on it. I went through that house after the owner was put in the hospital, while her grandsons were cleaning it out. It was clear that this woman couldn't handle her own basic needs, let alone that house. It needed new carpets, a new heater, kitchen and bath remodels, new windows, a modern electrical box, a complete updating. That house smacked of 1964. Nobody was going to buy it in that condition EXCEPT for an investor or a crazie like me who doesn't mind living on a construction site, heh. The family simply couldn't afford to fork over all the money needed to do all those repairs, nor could they wait for a crazie to come along. They needed to sell it right away to pay the owner's medical bills.

I walked through again when the rehab was done, and I was bowled over. Everything in that house was brandy-new. It was so nice, I hired the same contractor he used to do a bunch of stuff to my house.

Every penny of that profit was EARNED. All the new owners had to do was bring their furniture and fire up the utilities.

I'm not jealous of Ben. I want to do what he did!

[Mary G.]

Theresa, I'm sure that home rehab cost far more than 15 thousand dollars. From the conditions you're describing, it probably took several times that much money in materials alone, let alone labor. A lot of people can't afford to keep up their homes in terms of remodels and updates, or even repairs, which begs the question of what's going to happen to today's housing stock with so many people just barely able to afford the mortgage, let alone keep up their houses. What will their homes look like if they hang onto them into old age? It's probably a blessing that so many subprime borrowers are being foreclosed on, because it's sure they can't afford the upkeep of a home if they can't afford a real mortgage.

Those kind of rehab flippers are good. What makes flippers have a bad rep are the ones that do shoddy work, and there are amateurs out there since the housing bubble grew that have done bad work. And, of course, those flippers who bought and increased demand for new condos and homes, never did work on them or lived in them, and are now walking away and leaving their problems to the banks.

[investorguy]

Teresa: I hear you.

Done right, flipping is a lot of work. Every day off the market is money out of my pocket. And one large problem can eat your profit in just days -- if you missed a roof problem, if a foundation issue shows up, if you run afoul of the permit inspectors. If you know what you're doing, and the stars align, you can cash a nice check -- although a lot of it goes to buy Tums.

It's a helluva rush ;-)

[AnnS]

"The flipper who sold the house on my street worked hard on it. I went through that house after the owner was put in the hospital, while her grandsons were cleaning it out. It was clear that this woman couldn't handle her own basic needs, let alone that house. It needed new carpets, a new heater, kitchen and bath remodels, new windows, a modern electrical box, a complete updating. That house smacked of 1964. Nobody was going to buy it in that condition EXCEPT for an investor or a crazie like me who doesn't mind living on a construction site, heh. .......I walked through again when the rehab was done, and I was bowled over. Everything in that house was brandy-new. It was so nice, I hired the same contractor he used to do a bunch of stuff to my house.

Every penny of that profit was EARNED. .....
Posted by: Teresa Rothaar

Well SOME of the profit was earned. The amount of profit that was earned depends on the value-added by the maaterials and the labor to do the work. (BTW, rehab always costs more than starting from scratch since you have to tear out as well as install.)

We have always bought the house that had great design but needed work. The only rule we followed was the foundation had to be solid and the roof couldn't leak. There was one house we bought that when I got back in the car and told the realtor that I wanted to make an offer and didn't intend to nickle n' dime the offer as I just wanted it done, the relator looked at me with his mouth oopen and gasp out "you want to WHAT????" (In the end, I was right and he was wrong.)

The value of a property that needed rehab is (1) the cost to purchase it (2) the cost of materials (3) the cost of the labor to actually do the work (4) the value of the time overseeing the project and coordinating the work and (5) the interest paid on the loan to purchase/rehab

#1 is easy
#2 is easy - how much did the materials for the countertop cost
#3 is relatively easy. If you hire a contractor, it is how much you paid the contractor. If you do the work yourself, figure the difference between what a contractor would charge and the materials cost of the contractor. My clients who were contractors told me to take the cost of materials at 100 -133% as a reasonable amount since they figured construction costs at roughy maaterials cost x 2 .
#4 is a little harder. Figure the amount of hours it would have taken an experienced contractor to oversee and coordinate the project. An experienced rehabber will spend a whole lot less time coordinating and organizing than a novice rehabber.

By the way, on DIY, do make sure you are competent. Half-baked incompetently done work will actually LOWER the value of the property since it has to be donw all over again.

Our first rehab project several decades ago (and we lived there for 7 years) was purchased at $92,500 - we are talking 1950's interior that hadn't been updated except withwith olive green shag carpeting covering the hardwood floors in the hall and bedrooms, plus the original pink bathroom fixtures that were just so stunning with the white ceramic tile w/gold flecks below the red flocked wall paper, the original blond cabinets in the kitchen with stainless steel counters and the original dark redwood panelling throughout the living and dining rooms (and those were the good points to the interior.)

We put $45,000 in materials into the place and did every single bit of wor including updating the electric service, converting wasted space to a walk-in pantry, laundy and 3/4s bath, refinishing all the floors, custom-built kitchen cabinetry and new appliances, wallboard through 3 rooms, new flooring in 5 rooms in converting the 3-season breezeway to a family room, brick patio......

We sold the place for $275,000 7 years later - during a housing downturn. Is that a huge profit? Not really.

Basis was $92,500, materials $40,000, labor value $53,000 and 7 years appreciation at 3.5% $45980 = $231,480. That leaves about $44,000 - which is about 75% of the interest paid. ( It was during a housing price collapse so that was pretty good for the time and the fact that we couldn't wait out the prices as we had to move because of the elderly-parents-needing-help problem.)

So the question on whether a profit is 'earned' depends upon how much work the rehabber/flipper actually did theselves.