Is house flipping dead?

Rehabbing & House Flipping
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Is house flipping dead?

Matt Shields
Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes

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?

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Darren Lenick
Flipper/Rehabber · Davie, FL · Member since 2016 · 101 posts · 136 votes
8y
@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.
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  • Account Closed
    Investor · Portland, OR · Member since 2017 · 182 posts · 115 votes
    8y
    @Matt Shields time to actually start forcing value- new construction Build-To-Rent!
    1Reply
  • Lloyd Lau
    Rental Property Investor · Montreal, QC · Member since 2016 · 7 posts · 2 votes
    8y
    @Matt Shields I think essentially you are going to have to start doing bigger deals which novice don’t have the capital for In order to maintain your margIn Here in Canada I am working on turning triplex back into single family house. In Vancouver or Toronto you are looking at at least 800K to 1M cash to buy those triplexs off seller to bank, invest another 150K or so and eventually listed them for 1.8M to 2.2M The margin is still very well but obvisouly it ask for a whole lot more capital Just my two cents
    2Reply
  • Sammy G.
    Rental Property Investor · Houston, TX · Member since 2015 · 117 posts · 55 votes
    8y
    Yes margins are slimmer now versus what it was in the past. It’s mainly due to abundant cash infusion from private, hard, local & institutional lenders. I have been in this business for 13 years & the only deal sourcing that works for us is tax foreclosures. We are able to pick up handsome profitable deals pre-auction or at auction.
    1Reply
  • Jonathan Ortega
    Specialist · United States · Member since 2016 · 38 posts · 6 votes
    8y

    Not by a long shot. People are now flipping like its 2003.

    1Reply
  • William Huston
    Trinity, FL · Member since 2016 · 209 posts · 57 votes
    8y

    Ive been watching the local auctions here, i rarely see people buying them anymore 99% of them are bought by the banks, heck there was a house out in the county that was up for auction based on back taxes due of over 15 years.. The same bank that held the loan PRIOR to it being payed off purchased the property for near market value.

    1Reply
  • Daulton H.
    Rental Property Investor · SC · Member since 2017 · 37 posts · 35 votes
    8y

    As a historical comparison does anyone know how many flippers were around at the height of the market before 2007-2008?  After it all crashed and the market flooded with foreclosures the surge of DIY flipping hit the TV in conjunction with a viewer apatite for "reality TV".  To say flipping is dead is to say deals are dead.  Deals are on the buyer to find or create.  @Eric Adobo yes driving for dollars was/is alive.  We closed one 3 months ago (actually on my first attempt, got lucky). 

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    8y

    I don't really see the issue as deals being 'harder to find', it is: what is the cost to locate and acquire a deal, which is a cost just like renovation is a cost. It's not a matter of 'being patient', the issue is that the costs have gone up and return has gone down. 

    My guess is that this is just part of a market cycle that will change in another 5 years. If/when a market downturn causes thousands of wanna-be-flippers to lose big time and I tend to think flipping will go out of vogue.

    1Reply
  • John Patterson
    Contractor · Canton, GA · Member since 2015 · 107 posts · 81 votes
    8y

    As a common man , flipping for us will not be from wholesalers or auctions. The problem is always from finding the deals. The only advantage a smaller entity such as ourselves have is to hunt down local backdoor deals that has owner problems and not house problems. 

    The big boys are moving toward new construction. These jobs will produce larger cash flows with newer (upscale ) markets with the need of future flippers.

    True Flipping has always been around and it will stay around. But in perspective , We are the 2nd tier of the construction industry compared to the larger newer producers. So long as regulations allow the small man to flip houses, then this industry will stay active and viable.

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    It's not dead.  It never has been.  People flipped in 2008.  There is always a value to a property, you just have to know it and buy it at the right number.  

    4Reply
  • Stephen E.
    Rental Property Investor · Havelock, NC · Member since 2017 · 74 posts · 19 votes
    8y

    Primary Markets are not dead but declining based upon cost to profit. What about secondary and tertiary markets. Are they still alive and trhiving?

    0Reply
  • Jonathan Bowen
    Real Estate Broker · Stoughton, MA · Member since 2012 · 109 posts · 96 votes
    8y
    @Matt Shields It’s on vacation...
    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    8y
    Originally posted by @Tim G.:

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

     BP offers the opportunity for the consumer to educate themselves (if they choose) rather than just buying the hype.  Big difference in my opinion.

    1Reply
  • Jeremy England
    Contractor · Pensacola, FL · Member since 2017 · 311 posts · 156 votes
    8y

    I'm no expert, but I have made about a dozen cash offers to wholesalers, REOs, and auction sites in the past month, each one the home ended up sold to a buyer paying over asking price.  I think wholesalers are getting paid though.  

    I'm watiing to hear back from a wholesaler now.  Is a tough row to hoe in this market.  No room for profit.   This market is fillled with homes in the sub 100k price range so its there are lots of rental opportunities however.  

    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    8y

    I don't think it's dead. The true flippers will always stay in business.

    The folks watching the shows quickly realize it's not what it looks like on TV and quickly give up.

    The BIG hedge funds can't really compete in real estate in my opinion. Their biggest downside is they have too much money to deploy.

    I have seen margins come down quite a bit in my market. The deals are still out there, they are just harder to find. 

    1Reply
  • Aly Vizcarra
    Specialist · San Diego, CA · Member since 2018 · 88 posts · 54 votes
    8y

    Here in San Diego county we are still purchasing 10-15 houses per month that we sell to flippers.  I agree that some margins are smaller than others but we are still consistently picking up property that investors are making money on.  Even with San Diego pricing being higher than most markets, I think flipping in my area is far from dead.   Thanks! 

    0Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    @Matt Shields a prolonged bull market results in investors willing to accept slimmer margins due to undervalueung risk. This effectively means the “smart money” is “crowded out” of the market by the “dumb money”. This happens every cycle and It holds true for equities as well.
    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Steve B.:
    @Matt Shields a prolonged bull market results in investors willing to accept slimmer margins due to undervalueung risk. This effectively means the “smart money” is “crowded out” of the market by the “dumb money”. This happens every cycle and It holds true for equities as well.

    this is when you switch to being a lender at far less than ARV.... if the deal is skinny its skinny to the flipper not you.

    back in 02 ish as I had a nice run at court house steps in the PDX metro area.. the last auction I attended was in Wash. co.. 

    minimum bid was 80k on a Aloha 160k rancher..  35 individual bidders qualified so that was 35 people with say at least 100k in cashiers checks all crowded into the little foyee there.. so 3.5 million in CASH chasing one deal that ended up bidding up to maybe a 10k profit .

    I walked over to my bank and told my banker I am going to start a HML company so be prepared to change all my LOC's to a lending facility.. let everyone else bang their head against the wall we will just provide the capital LOL.. well that worked great until it did not in 08.. but you know what I mean.. sometimes being the bank is far more profitable than being the flipper..

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  • Ron Rohrssen
    Rental Property Investor · Marion, IA · Member since 2016 · 150 posts · 74 votes
    8y
    Originally posted by @Brian Pulaski:

    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)...

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

    I'd agree with your observations as well. I'm only on my second flip here in the Midwest. Margins are difficult and a lot of people have gotten into flipping. It's been a seller's market here for quite a while. My feeling is that's changing over a bit as DOM is increasing in some price ranges, and I'm seeing more listings with price reduction in the MLS.

    So, I'm watching to see if some of these flippers that didn't analyze the deal for a market pullback might get burned.

    0Reply
  • Rob Krach
    Lender · Chicago, IL · Member since 2013 · 82 posts · 27 votes
    8y

    @Jay Hinrichs this is the modern day "the real winner was the guy selling the pick axes during the gold rush" well done!

    4Reply
  • DJ DawsonBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2015 · 394 posts · 259 votes
    8y
    @Matt Shields I think if your plan is using the MLS, foreclosure lists, and other easily accesible means of finding deals then yes your going to struggle find projects that give you the margins you want. But never underestimate the power of driving for dollars, biking for dollars, running for dollars, around neighborhoods you deem as being good opportunistic locations. That’s where the margins are good
    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Rob Krach:

    @Jay Hinrichs this is the modern day "the real winner was the guy selling the pick axes during the gold rush" well done!

     or In todays world the  information selling gurus on how to flip.. pay me 40k and you will get your money back first flip  once I teach you how to do it.. LOL

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    1Reply
  • Kuba F.Pro Member
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
    8y
    Originally posted by @Matt Shields:

    @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.

    In Los Angeles that's the only way for some people to get into the housing market in a decent neighborhood below 1MM, so the reward is not the discount, but the ability to even enter the market.

    0Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    @Stephen E. I think that’s the best play right now, find a tertiary market In “the path to prIgress“ . I thInk NC whete you are located Offers many If those exact opoortInItIes. Buy and hold is probably safer than flipping depending on your cost of money
    0Reply
  • Matt Shields
    OP
    Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes
    8y

    I agree with those who point out that flipping is cyclical and you can find deals in any market, but is it worth the risk to work your tail off to find a couple of flips a year that only net $30,000? I think the paradigm shift that is going to occur in the flipping market will be the corporate flippers, especially Zillow. While Zillow may have larger overhead than small flippers, they don't need to be profitable for every deal, they had revenues of 1.1 billion dollars last year. From a distressed sellers perspective, why would they sell to a small unknown flipper when they can click on a Zillow "Instant Offer" and receive more money? I love flipping and hope I'm wrong, but as that annoying saying goes, it is what it is.

    1Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes
    8y

    It's not dead. Investors need to start thinking about outside the box strategies though in acquiring properties to flip. The average foreclosure auction puts most investors at a disadvantage when having to compete with well funded, fund backed purchasers of said properties. 

    You also have to weed out daisy chain wholesalers and the new investor who believed the hype on the TV flip shows and seminars. Education, mentorship and strategy will help you navigate and win the war just not the battles!

    It is time for a new strategy to acquire properties.

    0Reply
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