Is house flipping dead?

96 Replies

I ask if flipping is dead, or at least dying? Here in the Phoenix, Arizona metro area, I have watched the margin on deals become slimmer and slimmer. During the past few years, television shows and seminars have flooded the flipping market with people who believe flipping homes is an easy way to riches. Trustee auction prices are near to what MLS prices are, and I cannot believe what people are paying, they are behind the eight ball from day one. Now the large corporate flippers like Offer Pad and Open Door have moved in sucking up deals, and Zillow (the 800-pound gorilla of the real estate world) just announced they are getting into the flipping business here. Phoenix seems to be the testbed for these companies before they expand to the rest of the country, so if you don't have them operating in your city you probably will soon. What are your thoughts?

@Matt Shields Not dead but deal sourcing is becoming more difficult,. Even the banks are marketing properties on yard signs. The one benefit is it will push out the new investors with little patience for finding a deal. Deals can be had but you’ll have to work harder to find them.

I think it's OK if you do some of the work yourself. 

I think it's dead if you are a neophyte with the mindset there's lots of deals out there I just have to find them. 

I want to know if Driving for 💵 S was ever alive🤗😁

@Matt Shields in the long run I’m not overly concerned as this corporate entities have huge overheads and as margins get smaller and smaller they will have a tough time sustaining themselves. Small operators who work from home or small “mom and pop” offices will do better as they will be able to live from previous profits as long as they don’t squander the proceeds. If we have even a minor correction in the market, the large corporations could be left sitting on a lot of negative value inventory that will need to be liquidated In order to cover overhead and can only benefit the smaller entities with cash to scoop them up. My 2 cents for what it’s worth.

I have only been flipping a few years but there is a TON of competition when bidding. Houses that are deals at/around list price sell for $20-50k over asking. I think there are a lot of new flippers (I'm a newbie for the most part) and the prices are being driven. What I have seen with nearly all of them, when they come back on the market post flip, they are asking insane prices. A house I wanted, sold to someone else. My ARV was in the $275k range. The seller just listed at $339k, and didn't even open the floorplan up (as I had intended). Another I was ARVing around $215-220k popped up post flip at $275k and they left the 30 year old patched roof, the door casing baseboards, and the ancient window AC unit in the second floor window (it looks the same outside).

My guess is some of these newer flippers will end up losing out and the deals will come back (my hope at least).

@Darren Lenick I agree and don't see how these companies are profitable with the fee's they are charging, and with Zillow entering the market their margins will probably get even smaller. A downturn could definitely wipe out some of these corporate flippers, and small operators as well, but until then I think deals worth the risk are going to be few and far between. 

I don't think its seminars and tv shows that is a byproduct of the root cause, confidence in the market. It has gone up for almost a decade, this information allows the average person to feel confident in their purchase. Flipping will never die, so long as there is death, divorce, drugs and drama. The pie is shrinking. 

"Be fearful when people are greedy and greedy when people are fearful" 

A lot more investors enter the markets when they are hot. Right now the markets are hot. There is still money to be made through off market deals. 

@Matt Shields I don't know, but you're right about the trustee sales. We used to purchase a number of our flips from the trustee sales, but lately the prices are completely out of control. It seemed to be flippers were buying most of those properties years ago and I'm wondering if flippers are truly paying that much or if the end buyer is just changing....maybe buy and hold, rentals? 

@Kellen King I spoke with some of the proxy bidders and they told me that many of the current auction buyers are end users. I still don't understand why someone would pay retail for a trustee auction property with no title insurance or inspection. When purchasing at a substantial discount the risk is worth the reward, but now there is no reward, only risk.

Originally posted by @Brian Pulaski :

I have only been flipping a few years but there is a TON of competition when bidding. Houses that are deals at/around list price sell for $20-50k over asking. I think there are a lot of new flippers (I'm a newbie for the most part) and the prices are being driven. What I have seen with nearly all of them, when they come back on the market post flip, they are asking insane prices. A house I wanted, sold to someone else. My ARV was in the $275k range. The seller just listed at $339k, and didn't even open the floorplan up (as I had intended). Another I was ARVing around $215-220k popped up post flip at $275k and they left the 30 year old patched roof, the door casing baseboards, and the ancient window AC unit in the second floor window (it looks the same outside).

My guess is some of these newer flippers will end up losing out and the deals will come back (my hope at least).

Yeah, I think there's some truth here.

I had a property appraised the other day for a borrower. Value came back at $156,000 ARV. Borrower challenged the appraisal at every turn, called me names, etc. He tells me the Property is "worth $185,000!" There's not a house closeby with a value like that. So he said he's going to use his own cash, and do it himself.

The house will sell for $160,000, maybe.  Assuming this current climate.   Selling in the dead of winter?  Ok. 

Yea.. The Phoenix market is pretty crazy right now. And I actually DO think that the seminars have been up and running lately. I always get a few postcards and letters offering to buy my property as-is, all cash, tenant in place ok, no realtor commission blah, blah.. Those contacts have at least tripled in 2018. And more and more Im getting PHONE calls (often somehow automated I think as some of them go directly to voice mail) and some of the calls are clearly foreign VA callers. I just tell them to write it up the contract in email and give them a price 10% over FMV. That usually ends the contact.

@Darren Lenick , I disagree that that the corporate entitles won't be much of a factor.  Zillow has already stated that its target is to net just $3-$5k per deal, and by volume, create an additional $1B in revenue. They can pay what smaller investors can't until the scorched earth only leaves those who innovate.  I was in Raleigh on business a few weeks ago and met one of Zillow's execs at the airport.  he confirmed, they're just doing volume... For now.  But with a goal of $1B it's clear they don't intend to make that in just Vegas and Phoenix.  And they'll get more efficient as they bring on local talent.  

To the point of the post, flipping isn't dead. EASY flipping is dead. We flip in AZ & NC. I just picked up a property in for $65k that needs $45k in rehab, with an ARV of $205k in Phoenix. But we don't but from wholesalers any longer. And it took me months of wrangling to close it. We started as flippers and about a year ago began building out a sourcing arm to back into the wholesaling space because there was just no real margin in the deals I was seeing from wholesalers. They were laughable. The guys that'll survive are the ones who can source for themselves or build on vacant lots cheaply in my opinion. I believe new guys hyped up by the TV shows will continue to overpay and may things crazy until they go out of business.

@Brian M. To reiterate, I said in the long run. No entity can keep up for long with margins that low. Agreed, in the short term it will hurt the market, but it will also filter out those that want to make a quick buck and think it takes 1 week to flip. It’s like a lot of industries. I was in IT for 28 years before this and had a lot of competition from those who sold at a loss and made it up in volume. LOL I also made a good living following those “schlock houses” and cleaning up after them. Right now I’m buying full gut jobs. I find less competition in buying them and don’t mind taking a little longer for rehab as I’m all cash. Even holding them I’ve done better with appreciation then I would have in a bank or other investment. Example: purchased 46k, rehab 55k, ARV 180k. Since it’s under $200k it will sell fast in that area.

How is bigger pockets different than these seminars when it comes to creating enthusiasm for entering the real estate market and buying homes? 

@Matt Shields I think it depends on the market. The bigger cities it’s a lot harder to find a good deal now. I’m from South Florida and everyone there in real estate is telling me it’s impossible to find a good deal. Homes where I’m from are going for 400k, which is absolutely insane for the area. A good home there before was 200k. Now I live in Brooklyn NY and of course it’s impossible here as well. I’m looking for investments out of state and I know there’s still good areas out there for flipping. Just gotta find them!

@Darren Lenick I agree with most of what you replied with.  Although I don't know if I agree that they can't sustain with this model.  Even at those skinny margins, if they're holding the properties the opportunity vertically is property management, rental income.  Time will tell, but seeing as this isn't Zillow's primary business, it doesn't have to stand alone and can complement the company's other businesses.  I'm very curious to see how it pans out.  To your point about guts, we do value adds and guts as well.  In Phoenix it's becoming less and less worth it with labor being an issue.  There's commercial construction wherever you go and typically my cheap properties cost nearly $200k to get into.  The $65k was a rare gem in this market.  Hence our migration into NC and other areas soon.  

I agree that Zillow could really change not just flipping but the entire real estate market. They have begun partnering with some Arizona brokers, and I wouldnt be surprised if they eventually begin their own brokerage. I also think they want to take over the listing service from local MLS's, Zillow now has three times the traffic of Realtor.com.


Originally posted by @Brian M. :

@Darren Lenick , I disagree that that the corporate entitles won't be much of a factor.  Zillow has already stated that its target is to net just $3-$5k per deal, and by volume, create an additional $1B in revenue. They can pay what smaller investors can't until the scorched earth only leaves those who innovate.  I was in Raleigh on business a few weeks ago and met one of Zillow's execs at the airport.  he confirmed, they're just doing volume... For now.  But with a goal of $1B it's clear they don't intend to make that in just Vegas and Phoenix.  And they'll get more efficient as they bring on local talent.  

To the point of the post, flipping isn't dead. EASY flipping is dead. We flip in AZ & NC. I just picked up a property in for $65k that needs $45k in rehab, with an ARV of $205k in Phoenix. But we don't but from wholesalers any longer. And it took me months of wrangling to close it. We started as flippers and about a year ago began building out a sourcing arm to back into the wholesaling space because there was just no real margin in the deals I was seeing from wholesalers. They were laughable. The guys that'll survive are the ones who can source for themselves or build on vacant lots cheaply in my opinion. I believe new guys hyped up by the TV shows will continue to overpay and may things crazy until they go out of business.

It seems to be a very tough strategy(fix/flip) in the Austin area. I know of 2 flippers right now. One might make a 15k profit(maybe) and the other said: "my profit is going down every day." I also see the circus road shows that swoop in and have 1 or 2-day seminars "teaching" about flipping. It seems to be better business teaching rather than flipping. 

@Brian M. Time will tell. In the end I could be completely wrong not knowing their full strategy. My family, who were integral in getting me into flipping full time, got out of residential for now and are doing commercial. They are doing quite well but it requires a much larger financial commitment then I’m able/willing to make at the moment. Right now I only fix and flip for the cash-out ability but do plan on doing fix and holds for the passive income. I’m keeping my eye on commercial as well should the time arise when I’m ready to jump on a deal. In the end, the strategy is to do a mix of all three.

I am still seeing deals in Jax.  The market is definitely up.  You need cash and be willing to move fast.  The margin is not what it once was, but there is still money to be made.  I have been passing along a ton of both on and off market.

Most of the high volume flippers myself included have morphed into new construction.. where financing Is much tougher. fix and flip is saturated with HML looking for deals.

Originally posted by @David Morgan :

It seems to be a very tough strategy(fix/flip) in the Austin area. I know of 2 flippers right now. One might make a 15k profit(maybe) and the other said: "my profit is going down every day." I also see the circus road shows that swoop in and have 1 or 2-day seminars "teaching" about flipping. It seems to be better business teaching rather than flipping. 

 Yup those that teach make far more   and I mean FAR more than the students.. that's a given.

Flipping is still alive, deals just aren't smacking you in the face like they have in the past.  More media exposure, HGTV, etc have increased the demand of "why don't I try that" people so prices on active markets have increased so it appears margins are decreasing.  The only thing that has changed is that people who are actively flipping have different ways to purchase properties.  To hold off the "how are you finding them comment" I am not going to post about it.  It has taken me years to change my approach from the "sit and wait" to actively finding deals.