Flipping houses in retirement?

[Baylor3217]

I'm looking for alternative ways to generate cash flow beyond just stock market investments and other "paper" assets.

It would seem if someone could develop the necessary analysis skills, and your expenses were in the $25,000 to $40,000 range per year in retirement, that you could either 1) drastically reduce your needed asset accumulation to get to 4% SWR or 2) entirely cover your expenses for the year by flipping at the least 1 house per year and at most, probably 2.

This is obviously very regional, but living in Texas as I do, which is a very government hands off state with respect to many taxes and has people fleeing other states and flocking to it, it would seem that there would be demand for quality housing that cannot simply be built in the years and decades to come.

Does anyone do this?  It would seem to be a great option that would require relatively minimum amount of time when compared to the normal 2,080 hour work year a standard corporate career requires with the 8-5 rat race.

Thoughts?

[Jamesqf]

You do know that it's already been done, don't you?  And lots of people lost their shirts when the housing bubble popped in the middle of their flip.

[iris lily]

Maybe--if your analysis of the market is keen and you do much of the work yourself. But then, that's more like a job.

[arebelspy]

It takes lots of knowledge and hard work (sweat equity).

If you enjoy it, do it.  But I sure wouldn't want to have that constant drag on my ER plans.

[hybrid]

The missus is looking hard at this. She is very much looking forward to retiring from the Post Office, but does not wish to be idle during retirement. The thought of a second, part-time career is very enticing (and some extra money wouldn't suck either, it gets me that much closer to retirement).

What we envision is lowballing a run down foreclosure that needs sweat equity, fixing it up, and selling it. A very good friend is a realtor who is damned good at horse-trading down to a low number, so we have the resource in place to find that kind of property. Not simply buying a property and then trying to sell it for a larger sum like Jamesqf describes (Arebelspy, I bet you have some amazing stories living in the epicenter of that craziness).

We're still a few years out, and there are a zillion details, but we have rehabbed a rental property once already (learning a bunch of lessons along the way, some of them painful) so it would not be completely new territory for us. While both of us are still working we would not even consider the notion.

[Baylor3217]

My thought is to contract out most all the rehab work. The amount of work id personally do from a manual standpoint would be very minimal. I'd mainly just be bankrolling the deals.

[TomTX]

Get your real estate license.

[arebelspy]

My thought is to contract out most all the rehab work. The amount of work id personally do from a manual standpoint would be very minimal. I'd mainly just be bankrolling the deals.

Yeah, that's how I do rehabs.  It leaves idle money when looking for deals though.  Might not be bad if you want to hold cash in ER, the problem comes when the market dips at the same time you're in the middle of a rehab.  The more potential issues like that, the more you're running a sequence fore turns risk.

Sweat equity is free, that's why I was assuming that.

Get your real estate license.

To what point or purpose?  All that time and money for... MLS access?  And what else?

Getting licensed is about the last thing I'd do.

[hybrid]

My thought is to contract out most all the rehab work. The amount of work id personally do from a manual standpoint would be very minimal. I'd mainly just be bankrolling the deals.

,

For us, plumbing and electrical, yes. Painting, light repairs, fixtures, tearing out old carpeting, etc. , no. That's part of where we see making the money. I've done a lot of painting over the years, don't need to sub that kind of thing out. The missus is quite the handyperson.

Mustachian Buddy bought a foreclosure in our neighborhood a few years back, he got a helluva deal because the place was just plain ugly on the inside. Floors had to be refinished, god-awful wallpaper, old carpeting that had to go, some plumbing work, etc. Several thousand dollars and some sweat equity later the place looks great. He could have sold it fairly easily and pocketed about 20-25K I'd guesstimate as I have a good feel for what homes sell for in my area, as it would have easily sold for 40-45K more than what he bought it for. It just needed some loving. This is what we have in mind.

[arebelspy]

My thought is to contract out most all the rehab work. The amount of work id personally do from a manual standpoint would be very minimal. I'd mainly just be bankrolling the deals.

,

For us, plumbing and electrical, yes. Painting, light repairs, fixtures, tearing out old carpeting, etc. , no. That's part of where we see making the money. I've done a lot of painting over the years, don't need to sub that kind of thing out. The missus is quite the handyperson.

Mustachian Buddy bought a foreclosure in our neighborhood a few years back, he got a helluva deal because the place was just plain ugly on the inside. Floors had to be refinished, god-awful wallpaper, old carpeting that had to go, some plumbing work, etc. Several thousand dollars and some sweat equity later the place looks great. He could have sold it fairly easily and pocketed about 20-25K I'd guesstimate as I have a good feel for what homes sell for in my area, as it would have easily sold for 40-45K more than what he bought it for. It just needed some loving. This is what we have in mind.

Like I said earlier: If you enjoy it, do it.

For me, I have so many things I'd rather do in ER than paint a wall.  Doesn't matter if you pay me $500 an hour, I'll pass.

But some people like that stuff (heck, MMM would probably enjoy all that stuff very much), and more power to them.

[hybrid]

Get your real estate license.

To what point or purpose?  All that time and money for... MLS access?  And what else?

Getting licensed is about the last thing I'd do.

Yeah, that was what I was thinking as well. Having the good friend in place that I am very comfortable leaning on hard to find and negotiate the proper entry point is something that I don't feel like we need to duplicate, better to use his long years of SME in the field instead. Am I missing something?

[Cheddar Stacker]

Get your real estate license.

To what point or purpose?  All that time and money for... MLS access?  And what else?

Getting licensed is about the last thing I'd do.

Yeah, that was what I was thinking as well. Having the good friend in place that I am very comfortable leaning on hard to find and negotiate the proper entry point is something that I don't feel like we need to duplicate, better to use his long years of SME in the field instead. Am I missing something?

Commissions.

Coughing up 3-6% of the sale price to an agent each time it will really eat into your profits.

That was my initial reaction to TomTX's comment.

[TomTX]

Get your real estate license.

To what point or purpose?  All that time and money for... MLS access?  And what else?

Getting licensed is about the last thing I'd do.

Yeah, that was what I was thinking as well. Having the good friend in place that I am very comfortable leaning on hard to find and negotiate the proper entry point is something that I don't feel like we need to duplicate, better to use his long years of SME in the field instead. Am I missing something?

Commissions.

Coughing up 3-6% of the sale price to an agent each time it will really eat into your profits.

That was my initial reaction to TomTX's comment.

Yep. Commissions are expensive. For a few houses, not worth getting a license. If you intend to do this regularly, you're talking about giving up a large chunk of your return. You're not losing 3-6% of your gain, you're losing 3-6% of the value of the entire asset. Every time.

[Cheddar Stacker]

Get your real estate license.

To what point or purpose?  All that time and money for... MLS access?  And what else?

Getting licensed is about the last thing I'd do.

Yeah, that was what I was thinking as well. Having the good friend in place that I am very comfortable leaning on hard to find and negotiate the proper entry point is something that I don't feel like we need to duplicate, better to use his long years of SME in the field instead. Am I missing something?

Commissions.

Coughing up 3-6% of the sale price to an agent each time it will really eat into your profits.

That was my initial reaction to TomTX's comment.

Yep. Commissions are expensive. For a few houses, not worth getting a license. If you intend to do this regularly, you're talking about giving up a large chunk of your return. You're not losing 3-6% of your gain, you're losing 3-6% of the value of the entire asset. Every time.

Yeah, I said that too but I really should have stressed it like you did. You are really giving up 3-6% of your initial purchase price, 3-6% of your materials costs, 3-6% of your labor costs (both hired help and your own implied hourly rate), and 3-6% of your potential gain. When you really emphasize it like that it looks pretty bad. It's a high premium to tack on to all your costs.

[Jamesqf]

What we envision is lowballing a run down foreclosure that needs sweat equity, fixing it up, and selling it. A very good friend is a realtor who is damned good at horse-trading down to a low number, so we have the resource in place to find that kind of property. Not simply buying a property and then trying to sell it for a larger sum like Jamesqf describes...

Ah, but then you are not just flipping houses, you're doing renovations.  Quite a different thing, especially if you're doing most of the work yourself.  The difference is that you're expecting a return on your labor, not just passively waiting on a rising market.

I would think this could be profitable, IF you enjoy the work, and are worst-case prepared to hold on to the house for a long time if the market takes another dive.

[hybrid]

Yeah, I said that too but I really should have stressed it like you did. You are really giving up 3-6% of your initial purchase price, 3-6% of your materials costs, 3-6% of your labor costs (both hired help and your own implied hourly rate), and 3-6% of your potential gain. When you really emphasize it like that it looks pretty bad. It's a high premium to tack on to all your costs.

Ahhhh, point taken. Won't be 6% though, my realtor buddy doesn't pull that much in the dealings we've had with him.  Closer to 4% max. And the way he horse trades on the buying and selling side, it would be better than if we tried to buy and sell ourselves.

As for MLS access, pretty much all I need to do is invite him over for dinner, quality brew, and we can look to our heart's content (plus he sets us up on drip lists for certain areas at any point, we've sent enough business his way he knows it's not a dry well).

[arebelspy]

You seem to imply multiple things with your assumptions Cheddar and Tom, not least of which is that buying and selling is only possible through an agent (so you either pay one, or you are one).  This is not the case.

You can buy just fine without an agent, and you can sell without an agent (and you can use a listing service that list on the MLS for a flat fee, often only a few hundred dollars, no percent commission needed).

Further, a licence restricts you in certain ways, leading to many more disclosures, etc.

This is on top of the time to earn it, time to keep it up (ongoing classes and education) and the money it costs (initially and ongoing yearly licensing fees).

It's well worth paying an agent - IMO - to avoid those costs and hassles and time, and you'll probably even come out ahead dollar-wise.

Even if you have your license you still have to pay the agent of the other party (or the other side does, but either way it's less money you can make on the deal), so you're only saving one side of it, at best.

I'd personally be buying without an agent, then using an agent to list and sell it and pay their commission as well worth it.

If you're looking at doing this as a full time job or business, it's different.  A side gig in ER?  I'd definitely skip the license.

[Cheddar Stacker]

You seem to imply multiple things with your assumptions Cheddar and Tom, not least of which is that buying and selling is only possible through an agent (so you either pay one, or you are one).  This is not the case.

Correct, it's very possible to do without agents at high commissions. Everything is a choice, and everything is negotiable.

I'd personally be buying without an agent, then using an agent to list and sell it and pay their commission as well worth it.

Seems logical. Buying cheap foreclosure type places, and getting the highest market value possible on the selling side kind of thing makes sense.

If you're looking at doing this as a full time job or business, it's different.  A side gig in ER?  I'd definitely skip the license.

I'm very strongly considering doing this as a side gig in ER to earn a bit of cash, and do something I truly enjoy. Possible as a way to "retire" from the main gig before truly reaching a SWR. I've been through 3-4 different major build projects with family members and it was some of the best times I can remember. I really love this stuff.

I don't know what obtaining the license entails, but I've often thought it would just be another skill to add to the arsenal, plus you could offer cheap listings to friends/relatives as a bonus. Maybe you're right though, not really worth it unless you plan to do this a ton.

[DoubleDown]

If you would enjoy it and could make a go of it, that would be excellent. Personally I would find the risk to be too high for ER. Yes, you can make a killing on a single flip, but you could also take a bath. I'd say the large majority of successful, professional house flippers with lots of experience understand that a certain percentage of their deals each year are going to turn out to be losers. They have more winners, of course, to be able to absorb those losses, and they minimize them because of their experience. But for a small time investor (particularly a retiree with no other active income), having a single bad deal could be pretty ruinous.

The risks are many, and can happen to seasoned investors: Falling prices between your purchase and resale; unforeseen and very expensive construction or liability problems; land, zoning, or neighbor problems; labor problems; theft or vandalism; and many others I'm not even thinking of right now. Could you stomach losing one, two, or more years of living expenses in a single bad deal?

[Cheddar Stacker]

DoubleDown - not sure if you're talking to me since I just posted, or to the OP, but I'll give you my answer anyway.

I know there are risks. I know this ties up a lot of money in a non-liquid investment, and you might still lose money. I'm generally ok with taking some risks with investments, but I wouldn't do house flips as my main income source if I wasn't already close to FIRE (which I'm not yet BTW). If I were to begin flipping, I would likely wait until our passive income equals 80% or more of our expenses, and even then maybe still do some part time work. My wife really doesn't want to retire anytime soon, so at least there would be some regular income stream.

I'd rather buy low priced fixer uppers, fix them up, rent them short/long-term, then sell after a few/many years to harvest the gains. This allows for much better tax treatment of the capital gain portion of the venture. This is part of my plan to get to FI. I'm pretty much on the sideline now due to work commitments, young kids, and lack of liquid capital to devote right now, but I'm making it a priority to be ready 1 year from now to get in the game.

Realistically I'm thinking I will suffer from one more year syndrome and won't leave the main gig until our passive income covers 125% of our expenses just to add safety margin, then do some very slow paced flips more as a hobby and be ok with just breaking even.

[Baylor3217]

DoubleDown - not sure if you're talking to me since I just posted, or to the OP, but I'll give you my answer anyway.

I know there are risks. I know this ties up a lot of money in a non-liquid investment, and you might still lose money. I'm generally ok with taking some risks with investments, but I wouldn't do house flips as my main income source if I wasn't already close to FIRE (which I'm not yet BTW). If I were to begin flipping, I would likely wait until our passive income equals 80% or more of our expenses, and even then maybe still do some part time work. My wife really doesn't want to retire anytime soon, so at least there would be some regular income stream.

I'd rather buy low priced fixer uppers, fix them up, rent them short/long-term, then sell after a few/many years to harvest the gains. This allows for much better tax treatment of the capital gain portion of the venture. This is part of my plan to get to FI. I'm pretty much on the sideline now due to work commitments, young kids, and lack of liquid capital to devote right now, but I'm making it a priority to be ready 1 year from now to get in the game.

Realistically I'm thinking I will suffer from one more year syndrome and won't leave the main gig until our passive income covers 125% of our expenses just to add safety margin, then do some very slow paced flips more as a hobby and be ok with just breaking even.

I'm already in OMY syndrome but I enjoy my job and am south of 40. My concern is not having enough diversity in streams of income. Most of my assets are tied up in the stock market and other paper assets. Getting to a point where S&P yield equals yearly expenses would probably take a couple more years and with the debasing of our fiat currency and significant increase in "welfare" of all types, I have concerns the stock market may not continue on the same trajectory we saw from the early 80s to Bush's presidency.

We're just 18% above the peak Dow price under Bush after 6 years and tripling our debt or so. That's barely 3% per year and are now saddled with significant increases entitlement spending with a significantly decreasing workforce under Obama.

I am not smart enough to know if any of that will be enough to significantly change the long term math and expected trends of the market but getting 10-12% per year over 30 years (including dividends) may not be realistic. I'm investing like I will be, but am wanting to diversify my "hope" in the stock market with other cash flow streams.

What other streams have y'all already connected or do you see as viable with minimal effort (stock dividends = no effort and full time job = 100% effort so I'm looking for options closer to the dividend end of the spectrum).

[DoubleDown]

DoubleDown - not sure if you're talking to me since I just posted, or to the OP, but I'll give you my answer anyway.

I know there are risks. I know this ties up a lot of money in a non-liquid investment, and you might still lose money. I'm generally ok with taking some risks with investments, but I wouldn't do house flips as my main income source if I wasn't already close to FIRE (which I'm not yet BTW). If I were to begin flipping, I would likely wait until our passive income equals 80% or more of our expenses, and even then maybe still do some part time work. My wife really doesn't want to retire anytime soon, so at least there would be some regular income stream.

I'd rather buy low priced fixer uppers, fix them up, rent them short/long-term, then sell after a few/many years to harvest the gains. This allows for much better tax treatment of the capital gain portion of the venture. This is part of my plan to get to FI. I'm pretty much on the sideline now due to work commitments, young kids, and lack of liquid capital to devote right now, but I'm making it a priority to be ready 1 year from now to get in the game.

Realistically I'm thinking I will suffer from one more year syndrome and won't leave the main gig until our passive income covers 125% of our expenses just to add safety margin, then do some very slow paced flips more as a hobby and be ok with just breaking even.

Cheddar Stacker -- I was just talking to everyone in general, not you or anyone in particular. It sounds like you've thought this through and have a good plan worked out. I personally and especially prefer your plan to fix up some houses and rent them out for a while before selling. I've got absolutely nothing against quick flipping; it's just a riskier prospect, particularly if any kind of leverage is involved (pretty much like any investment). With greater risk can come some greater reward, or greater loss.

With your plan to hold on to some good cash flowing properties, you can take advantage of all the benefits you laid out, have less risk than flipping, and can always decide to sell and realize some gains if/when the market looks good. Sounds excellent!

[arebelspy]

What other streams have y'all already connected or do you see as viable with minimal effort (stock dividends = no effort and full time job = 100% effort so I'm looking for options closer to the dividend end of the spectrum).

Rental income. 

[Nords]

Flipping houses in retirement?

This just sounds oxymoronic...

[arebelspy]

Flipping houses in retirement?

This just sounds oxymoronic...

Careful, around here you can't call anything work lest the IRP label come out.  ;)

[greaper007]

Where are you guys flipping houses?    From what I can tell, it doesn't seem possible in the Denver market right now.   Otherwise, I think it would be a great pre-ER job for me when the kids are all in school full time.   

[dragoncar]

What we envision is lowballing a run down foreclosure that needs sweat equity, fixing it up, and selling it. A very good friend is a realtor who is damned good at horse-trading down to a low number, so we have the resource in place to find that kind of property. Not simply buying a property and then trying to sell it for a larger sum like Jamesqf describes...

Ah, but then you are not just flipping houses, you're doing renovations.  Quite a different thing, especially if you're doing most of the work yourself.  The difference is that you're expecting a return on your labor, not just passively waiting on a rising market.

I would think this could be profitable, IF you enjoy the work, and are worst-case prepared to hold on to the house for a long time if the market takes another dive.

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house (granite countertops, stainless steel appliances) and reselling for a profit.  On the other hand, everything I've read indicates that on average renovations don't earn back their cost -- kitchen remodel at say 80% for example.  Are flippers really relying on capital appreciation and just deluding themselves as to the upside of their renovations, or is there some extraordinary skill in choosing the proper renovations?

I'm talking about stuff like this: http://sf.curbed.com/archives/2014/04/03/inner_sunset_four_bedroom_flips_for_1m_gain_in_nine_months.php

[fixer-upper]

Where are you guys flipping houses?    From what I can tell, it doesn't seem possible in the Denver market right now.   Otherwise, I think it would be a great pre-ER job for me when the kids are all in school full time.

The Denver market is tough right now, but it wouldn't hurt to keep an eye on Hubzu. 

https://www.hubzu.com/searchResult?searchBy=colorado&viewType=map

I'm bidding on a 3/2/2 ranch in Wisconsin.  It's trashed, stinky, and the pipes froze over the winter, but I should be able to pick it up for 70k, spend 20k on rehab, and sell for 160ish.

[TomTX]

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house (granite countertops, stainless steel appliances) and reselling for a profit.  On the other hand, everything I've read indicates that on average renovations don't earn back their cost -- kitchen remodel at say 80% for example.  Are flippers really relying on capital appreciation and just deluding themselves as to the upside of their renovations, or is there some extraordinary skill in choosing the proper renovations?

I'm talking about stuff like this: http://sf.curbed.com/archives/2014/04/03/inner_sunset_four_bedroom_flips_for_1m_gain_in_nine_months.php

"Flipping" successfully requires three main things, IMO:

1) Identifying a significantly under-valued property

2) Repairing issues which are driving away buyers

3) Keeping costs down

Renovating a currently-functional space typically doesn't make money. On the "flip" side, you should be identifying issues which are NBD to fix - but are keeping the house from being "move-in-ready" - which most buyers want. Replace the nasty, stained, smelly carpet. Patch and repaint the banged-up walls. Update the decrepit light fixtures - maybe replace with fans. Replace broken switches. Rebuild/replace the broken toilet. Replace the broken water heater. You can also be trying to add "curb appeal" - get overgrown landscaping back in place. Mow the grass. Clean out the gutters. Maybe put in some nice flowers.

However, you shouldn't be ripping out the whole front yard, adding a retaining wall, regrading, installing a Japanese fishpond with bridge, all-new shrubs, et cetera.

The focus for a flipper should be the easy, cheap fixes that take a fundamentally sound house from repellent to attractive and functional.

[arebelspy]

What we envision is lowballing a run down foreclosure that needs sweat equity, fixing it up, and selling it. A very good friend is a realtor who is damned good at horse-trading down to a low number, so we have the resource in place to find that kind of property. Not simply buying a property and then trying to sell it for a larger sum like Jamesqf describes...

Ah, but then you are not just flipping houses, you're doing renovations.  Quite a different thing, especially if you're doing most of the work yourself.  The difference is that you're expecting a return on your labor, not just passively waiting on a rising market.

I would think this could be profitable, IF you enjoy the work, and are worst-case prepared to hold on to the house for a long time if the market takes another dive.

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house (granite countertops, stainless steel appliances) and reselling for a profit.  On the other hand, everything I've read indicates that on average renovations don't earn back their cost -- kitchen remodel at say 80% for example.  Are flippers really relying on capital appreciation and just deluding themselves as to the upside of their renovations, or is there some extraordinary skill in choosing the proper renovations?

I'm talking about stuff like this: http://sf.curbed.com/archives/2014/04/03/inner_sunset_four_bedroom_flips_for_1m_gain_in_nine_months.php

Superficial renovations (often called "lipstick on a pig") is not what the good flippers do.  The ones you describe give flippers a bad name, in the same way that slumlords give good landlords a bad name.

The key to flipping isn't that you're doing renovations that return more than you paid, it's that you bought the property significantly under the fair market value, minus repairs, and make a profit from that.

This (very likely) won't be found by getting some random trashed property on the MLS and hoping to make a buck fixing it.

[foobar]

There is no fixed definition of what flipping is.  When you look at the CA house, the kicker is that they added 875 sq ft. Going from 1400sq ft to 2200 is pretty huge in a place like SF.  The reason the price double was largely because of that (i.e. 700 dollars/sq ft on a 1400k = 980. 700x2200 =1540k). And yeah having the markets go up when your doing your work is a nice plus.

Renovations can add value but the base has to be bad and you don't want to be paying retail to get the work done.

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house (granite countertops, stainless steel appliances) and reselling for a profit.  On the other hand, everything I've read indicates that on average renovations don't earn back their cost -- kitchen remodel at say 80% for example.  Are flippers really relying on capital appreciation and just deluding themselves as to the upside of their renovations, or is there some extraordinary skill in choosing the proper renovations?

I'm talking about stuff like this: http://sf.curbed.com/archives/2014/04/03/inner_sunset_four_bedroom_flips_for_1m_gain_in_nine_months.php

[MrsPete]

Like I said earlier: If you enjoy it, do it.

I think this is the best answer.  If you enjoy this type of work and would enjoy doing the rehab yourself, it might be a money maker for you. 

One hard and fast rule:  If you're going to make money on flipping houses, you make your money on the day you buy.  That is, you're not going to "save" enough on the plumbing, etc. -- even if you do the work yourself -- unless you buy the house for a real, rock-bottom price.  And it takes experience to know what that rock bottom price is.  You have to have "the eye" to know what's fixable (for a reasonable price) and what isn't.  If you overpay for the house, you're not going to be able to "save" enough on paint and fixtures to recoup that overpayment.

[hybrid]

Superficial renovations (often called "lipstick on a pig") is not what the good flippers do.  The ones you describe give flippers a bad name, in the same way that slumlords give good landlords a bad name.

The key to flipping isn't that you're doing renovations that return more than you paid, it's that you bought the property significantly under the fair market value, minus repairs, and make a profit from that.

This (very likely) won't be found by getting some random trashed property on the MLS and hoping to make a buck fixing it.

You lost me here. When I described above what Mustachian Buddy accomplished with his current home it was patently obvious to me that he in fact could have sold it again at substantially more than what he paid including all the basic repairs. To me that qualifies as a "flip", maybe other folks have a different notion of what a flip is.

   

[arebelspy]

Superficial renovations (often called "lipstick on a pig") is not what the good flippers do.  The ones you describe give flippers a bad name, in the same way that slumlords give good landlords a bad name.

The key to flipping isn't that you're doing renovations that return more than you paid, it's that you bought the property significantly under the fair market value, minus repairs, and make a profit from that.

This (very likely) won't be found by getting some random trashed property on the MLS and hoping to make a buck fixing it.

You lost me here. When I described above what Mustachian Buddy accomplished with his current home it was patently obvious to me that he in fact could have sold it again at substantially more than what he paid including all the basic repairs. To me that qualifies as a "flip", maybe other folks have a different notion of what a flip is.

I'm not sure what you're trying to say. 

Reread my post.  Which part did I lose you at?

Your post about your buddy included the phrase "he got a helluva deal" - THAT'S what makes a flip possible, not picking out certain renovations that happen to return more than their value.  The key to flipping is getting an undervalued property, likely not something you'll find easily on the MLS in most areas, meaning you can find a mediocre deal and profit from your labor, but you won't make much profit on the actual business part of it.

[fixer-upper]

Superficial renovations (often called "lipstick on a pig") is not what the good flippers do.  The ones you describe give flippers a bad name, in the same way that slumlords give good landlords a bad name.

The key to flipping isn't that you're doing renovations that return more than you paid, it's that you bought the property significantly under the fair market value, minus repairs, and make a profit from that.

This (very likely) won't be found by getting some random trashed property on the MLS and hoping to make a buck fixing it.

You lost me here. When I described above what Mustachian Buddy accomplished with his current home it was patently obvious to me that he in fact could have sold it again at substantially more than what he paid including all the basic repairs. To me that qualifies as a "flip", maybe other folks have a different notion of what a flip is.

 

In my case, it's adding value by getting the place up to minimum lending standards.  I'll pretty it up, too, but the main added value is taking it from cash only to something people can use to go deeper in debt.

[hybrid]

Superficial renovations (often called "lipstick on a pig") is not what the good flippers do.  The ones you describe give flippers a bad name, in the same way that slumlords give good landlords a bad name.

The key to flipping isn't that you're doing renovations that return more than you paid, it's that you bought the property significantly under the fair market value, minus repairs, and make a profit from that.

This (very likely) won't be found by getting some random trashed property on the MLS and hoping to make a buck fixing it.

You lost me here. When I described above what Mustachian Buddy accomplished with his current home it was patently obvious to me that he in fact could have sold it again at substantially more than what he paid including all the basic repairs. To me that qualifies as a "flip", maybe other folks have a different notion of what a flip is.

I'm not sure what you're trying to say. 

Reread my post.  Which part did I lose you at?

Your post about your buddy included the phrase "he got a helluva deal" - THAT'S what makes a flip possible, not picking out certain renovations that happen to return more than their value.  The key to flipping is getting an undervalued property, likely not something you'll find easily on the MLS in most areas, meaning you can find a mediocre deal and profit from your labor, but you won't make much profit on the actual business part of it.

Ahhh, OK, I'm following now. I wasn't following the MLS part. Buddy found the property through our realtor buddy and they did use the MLS to find it, but they scouted out a whole bunch of properties before finding the diamond in the rough. In other words, while looking for a good deal on his next home they stumbled across a real ugly duckling that just needed some loving to be a swan again. Buddy was willing to look past the floors that needed sanding, dirty carpet, and ugly wallpaper, etc. to see the good bones (and very real potential) underneath.

That's the sort of thing we have in mind. And if we don't find one, we don't need really need one. After 26 years of soul-crushing work at the PO the missus is excited at the opportunity to do something for herself. 

[quilter]

our friend that tried this ended up back at work.  Although he sincerely thought he knew what he was doing, there were many underlying problems he could not see until floors were ripped up and other things exposed.  He is back working because his expenses were so high and so early into ER he just took out too much of his stache.  Be very careful that you are not unrealistic no matter how talented and hard working you are.  people do stupid bandaid things through the years to important things like wiring and plumbing that if you are conscientious will probably fix to at least be safe.

[SugarMountain]

Where are you guys flipping houses?    From what I can tell, it doesn't seem possible in the Denver market right now.   Otherwise, I think it would be a great pre-ER job for me when the kids are all in school full time.

When I was refinancing two years ago, I talked to the appraiser some and in addition to appraising he is a fix & flipper here in Denver.  He basically said, it's way to pay yourself to be a handyman.  Didn't seem like he was getting rich at it.

I actually think it would be reasonably easy (if risky) in Denver right now, although in the city it seems the money is in buy, scrape, and build.  There was a lull after they changed the zoning to limit duplexes, but there are tons of scrapes near me right now. 

I think a lot depends on the neighborhood.  Platt Park where I live is booming right now.  You could probably make money buying and holding for 6 months. I also think it would be easier when you're still employed and it's probably easier to get leveraged.  If you can find a place and be cashflow neutral renting it after putting 20% down, keep it for a few years where it appreciates at 3% a year, your returns are more like 15%/year because of leverage.

Of course I haven't found the stomach to do this myself.

I second the idea of getting a real estate license if you're going to do this regularly.  From what I've heard it's not terribly difficult and would likely save you a few percent per deal.  Doesn't take too many $200,000 houses for it to add up.

[greaper007]

Thanks Bob.   I occasionally find something that I could rent for decent cash flow but I don't see much that we could flip.   We're small business owners and even though our income is north of $100k it seems overly difficult for us to get a loan right now.    I tried refinancing last year and we apparently didn't even qualify for a loan on our current house because of our goofy s-corp income.

Maybe in a few years.    Are you in the real estate game?

[Luck better Skill]

  Another increase in value possibility on flipping is a change others missed.  Examples:  A large house in an area that is rezoned that could be split into apartments, or poorly used space that could be turned into a second bath in the house.  Most renovations do not add more value to the house than they cost, but going from one bath to two changes the buyers who are willing to look at the property.
  And as someone said earlier, taking property that is not move in ready, won't qualify for a mortgage and making those improvements.

[Jamesqf]

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house...

I guess it's a matter of definition: my understanding of 'flipping' doesn't include doing any work, other than perhaps minor cleanup & cosmetic stuff - 'staging' &c.

[arebelspy]

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house...

I guess it's a matter of definition: my understanding of 'flipping' doesn't include doing any work, other than perhaps minor cleanup & cosmetic stuff - 'staging' &c.

Yeah, that became popular in 2006 or so, as people didn't have to do actual improvements to make money, due to bubble appreciation.

Rehabing/flipping as an actual solid plan involves lots of work (yourself or paying someone else to do it).

[Luck better Skill]

Can someone explain this to me?  My understanding of the phrase "flipping" generally includes slapping the most superficual renovations onto a house...

I guess it's a matter of definition: my understanding of 'flipping' doesn't include doing any work, other than perhaps minor cleanup & cosmetic stuff - 'staging' &c.

Yeah, that became popular in 2006 or so, as people didn't have to do actual improvements to make money, due to bubble appreciation.

Rehabing/flipping as an actual solid plan involves lots of work (yourself or paying someone else to do it).

I think there were many watchers of Flip this House and Flip that house that got into flipping, and got burned.  The couple of shows I saw they were doing crazy improvements.  The only way those sold at a profit was the bubble pushing prices up every month.

[greaper007]

It seems like there's still money to be made by buying semi-distressed properties and fixing them enough to be rentals.   I know rentals are fairly difficult to come by in the Denver area since lending is still so tight.

[GoCubsGo]

I've had quite a bit of experience in many of the points brought up in this thread so I figured I'd chime in.  I'm an ex-corporate person who has "flipped" multiple homes and have a few rentals that I've personally rehabbed.  I am also a full time Realtor. 

I tend to have a negative connotation to the word "flipping" as there are guys out there covering up problems and making homes "appear" nice just to sell in a hot market (often fraudulently). They definitely can give the honest "flippers" a bad rap. 

In regards to the OP, I have at least 1-3 people a month call me or get referred to me because they want to "flip" homes (my local market is on fire right now with multiple offers on the majority of homes that need work). Many have no idea what is entailed and go by what they see on TV.   I educate them on what is involved and what to realistically expect.   I have turned away quite a few of these referrals as I could tell they had fairytale dreams of taking cosmetic issues and using their "great taste" to make tons of money. I also work with a couple professional rehabbers and they are for the most part VERY disciplined in their decision making and very quick to pull the trigger on deals that match their criteria.  You really need to have a thorough game plan before you even begin to think about flipping (including financing, source of deals, excellent contractors, etc).  If you don't, you will be paying for a tough education.  Not trying to dissuade you, just be realistic in your returns.

I have bought foreclosures off the MLS and as a Realtor I get a commission check for 3% the day I close on it which is always useful (especially on $250 K homes). I've also bought homes not on the MLS.  Don't limit your search, a deal can come from a lot of places.  That said, unless you do 2 or more a year, I don't think a real estate license would be worth the aggravation.

My best flips (and my clients best flips) have often been when a functional problem is fixed that the average person wouldn't want to do or would consider too expensive.  I bought a home that had 4 bedrooms including  2 gigantic ones upstairs.  The problem was there was no bath up there.  I put in a dormer bath and reconfigured the layout so that the 2 giant rooms ended up as 3 bedrooms and one full bath.  Total cost was $14K (much of the work done myself).  The house sold for considerably more because I fixed that functional issue.  If you can align yourself with a contractor who can help you identify and cost out making those functional fixes, you can significantly enhance your ability to sell your flip to a wider range of buyers which generally leads to more $.

If you are going to do a lot of work yourself (as I do because I enjoy it), definitely keep track of your time so you can figure out the real cost of rehabbing a house.

[Luck better Skill]

I've had quite a bit of experience in many of the points brought up in this thread so I figured I'd chime in.  I'm an ex-corporate person who has "flipped" multiple homes and have a few rentals that I've personally rehabbed.  I am also a full time Realtor. 

I tend to have a negative connotation to the word "flipping" as there are guys out there covering up problems and making homes "appear" nice just to sell in a hot market (often fraudulently). They definitely can give the honest "flippers" a bad rap. 

In regards to the OP, I have at least 1-3 people a month call me or get referred to me because they want to "flip" homes (my local market is on fire right now with multiple offers on the majority of homes that need work). Many have no idea what is entailed and go by what they see on TV.   I educate them on what is involved and what to realistically expect.   I have turned away quite a few of these referrals as I could tell they had fairytale dreams of taking cosmetic issues and using their "great taste" to make tons of money. I also work with a couple professional rehabbers and they are for the most part VERY disciplined in their decision making and very quick to pull the trigger on deals that match their criteria.  You really need to have a thorough game plan before you even begin to think about flipping (including financing, source of deals, excellent contractors, etc).  If you don't, you will be paying for a tough education.  Not trying to dissuade you, just be realistic in your returns.

I have bought foreclosures off the MLS and as a Realtor I get a commission check for 3% the day I close on it which is always useful (especially on $250 K homes). I've also bought homes not on the MLS.  Don't limit your search, a deal can come from a lot of places.  That said, unless you do 2 or more a year, I don't think a real estate license would be worth the aggravation.

My best flips (and my clients best flips) have often been when a functional problem is fixed that the average person wouldn't want to do or would consider too expensive.  I bought a home that had 4 bedrooms including  2 gigantic ones upstairs.  The problem was there was no bath up there.  I put in a dormer bath and reconfigured the layout so that the 2 giant rooms ended up as 3 bedrooms and one full bath.  Total cost was $14K (much of the work done myself).  The house sold for considerably more because I fixed that functional issue.  If you can align yourself with a contractor who can help you identify and cost out making those functional fixes, you can significantly enhance your ability to sell your flip to a wider range of buyers which generally leads to more $.

If you are going to do a lot of work yourself (as I do because I enjoy it), definitely keep track of your time so you can figure out the real cost of rehabbing a house.

Good advice.

[CarDude]

I've had quite a bit of experience in many of the points brought up in this thread so I figured I'd chime in.  I'm an ex-corporate person who has "flipped" multiple homes and have a few rentals that I've personally rehabbed.  I am also a full time Realtor. 

I tend to have a negative connotation to the word "flipping" as there are guys out there covering up problems and making homes "appear" nice just to sell in a hot market (often fraudulently). They definitely can give the honest "flippers" a bad rap. 

In regards to the OP, I have at least 1-3 people a month call me or get referred to me because they want to "flip" homes (my local market is on fire right now with multiple offers on the majority of homes that need work). Many have no idea what is entailed and go by what they see on TV.   I educate them on what is involved and what to realistically expect.   I have turned away quite a few of these referrals as I could tell they had fairytale dreams of taking cosmetic issues and using their "great taste" to make tons of money. I also work with a couple professional rehabbers and they are for the most part VERY disciplined in their decision making and very quick to pull the trigger on deals that match their criteria.  You really need to have a thorough game plan before you even begin to think about flipping (including financing, source of deals, excellent contractors, etc).  If you don't, you will be paying for a tough education.  Not trying to dissuade you, just be realistic in your returns.

I have bought foreclosures off the MLS and as a Realtor I get a commission check for 3% the day I close on it which is always useful (especially on $250 K homes). I've also bought homes not on the MLS.  Don't limit your search, a deal can come from a lot of places.  That said, unless you do 2 or more a year, I don't think a real estate license would be worth the aggravation.

My best flips (and my clients best flips) have often been when a functional problem is fixed that the average person wouldn't want to do or would consider too expensive.  I bought a home that had 4 bedrooms including  2 gigantic ones upstairs.  The problem was there was no bath up there.  I put in a dormer bath and reconfigured the layout so that the 2 giant rooms ended up as 3 bedrooms and one full bath.  Total cost was $14K (much of the work done myself).  The house sold for considerably more because I fixed that functional issue.  If you can align yourself with a contractor who can help you identify and cost out making those functional fixes, you can significantly enhance your ability to sell your flip to a wider range of buyers which generally leads to more $.

If you are going to do a lot of work yourself (as I do because I enjoy it), definitely keep track of your time so you can figure out the real cost of rehabbing a house.

This here's good advice.

[Cpa Cat]

Be careful with the IRS.

1) If you do it quickly, it will be STCG (ordinary income).

2) If you do it often, there's a chance the IRS will deem it your trade/business and BAM - ordinary income + self employment tax and generally complicate your life.

I don't know all of the details, but I've read of people leveraging these kinds of properties into rental properties for a couple of years, then moving in and very carefully, repeatedly utilizing primary residence gain exclusions.