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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  • Matt Shields
    OP
    Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes
    8y
    With prices so high most of ours are going to 3rd parties. Trustee auctions are at or near retail prices so there is no reason for the lenders to want them. 

    Originally posted by @William Huston:

    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.

    0Reply
  • James Barnhart
    Rental Property Investor · Ocala, FL · Member since 2016 · 226 posts · 140 votes
    8y

    I agree with Brian, in that EASY flipping is about dead, and the profits are less now, but there are still deals to be found.  I have learned that I have to offer strageticaly lower prices than the offered price.  Often, the sellers think that they can take advantage of the market conditions, and make big money on a property that needs a ton of work.  It takes several offers to find the person ready to sell now.   A preforeclosure person is more willing to talk, and to sell, based on my experience.

    0Reply
  • Tayo Ogunnaike
    Developer · Los Angeles, CA · Member since 2015 · 9 posts · 5 votes
    8y

    It depends on how you're flipping. If new cabinets, paint and carpet are your thing then deals will certainly be a struggle to acquire. In the Los Angeles market, I'm still having success buying homes off the MLS (often over asking) by adding REAL value through additional square footage or starting from scratch by knocking an existing property down to build a bigger and better one.

    2Reply
  • David Haas
    Woodstock, GA · Member since 2017 · 3 posts · 3 votes
    8y

    @Brian M. Agreed. I used to work for a company called Altisource and this was their model. They were taking a piece of each part of the transaction. They did mortgage servicing. The place goes to foreclosure, they take back on behalf of the lender. They did the repairs and put it back on the market. If it didn't sell, they kick it over to their rental division. They were not making great margins, but the volume and fact that they are taking a portion of every dollar passing through the property makes the difference. 

    1Reply
  • Cathryn Bankhead
    Investor · Southaven, MS · Member since 2012 · 15 posts · 0 votes
    8y
      0Reply
    1. Brett Goldsmith
      Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
      8y

      Not by any means, just takes more experience and creative lead gen to structure favorable transactions with large margins.

      0Reply
    2. Brandon SturgillBusiness Member
      Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
      8y

      It was never alive, was it?...really. Ask to see your top house flippers last taxes...ouch!

      937-979-7000
      Realize Multifamily Group11 Review
      View Page
      0Reply
    3. Bob Prisco
      Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
      8y

      @Matt Shields  not at all. I’ve done 100s and 100s .  I’m now averaging about seven per month with four this week alone. It’s all about connections, how you get your deals, having the right client base and providing excellent service.   I should add however I’m flipping properties to other investors for rentals.  But could flip to end users as well , which we are starting to do this year as we can get about 20% more, . Good luck to all.   PS rentals are the way to go, who cares if the market goes up or down 10- 20% , still collecting the rent each month. 

      1Reply
    4. Erik Kostyuk
      Granite Bay, CA · Member since 2018 · 7 posts · 7 votes
      8y
      I dont think it's dead, I think it's at a point where smaller investors really need to start looking at different ways at finding deals. I've never done it myself but I find it weird that in the podcast whenever it comes up Brandon always says such great things about it, but whenever I get on the forums all I hear is that it's a waste. Direct mail and wholesalers are probably a good way to go at this point, I feel like everyone jumps onto bandwagons and flipping is one right now, but when enough people lose their money I feel like people will go back to fearing real estate.
      2Reply
    5. John Patterson
      Contractor · Canton, GA · Member since 2015 · 107 posts · 81 votes
      8y

      Another far fetch thought. What if all of these flippers and new Home sales are driving up the costs of homes. Maybe the deals that we are thinking are too high are really not the top. In some ways we are refurbishing the past and gradually, moving to more milion dollar homes. 

      If total Home inventory is low, and demand and price are  going up, then the market is going to go much higher. The key wil be if the incomes/ and cash will rise to meet it . Or will foreign interests start buying more of our real estate to raise our inflation rate? 

      0Reply
    6. Bob Prisco
      Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
      8y

       I have a buddy here in LI doing about 10- 15 per year the last 5 years, avg about 1 mill per year profit. Its all about knowing how and where to get deals,, All the  best to everyone. 

      0Reply
    7. Joe Threats
      Lithia Springs · Member since 2016 · 61 posts · 12 votes
      8y
      Originally posted by @Tim G.:

      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" 

        WARREN BUFFETT??👆🏾🤔

      0Reply
    8. Eric James
      Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
      8y
      Originally posted by @Matt Shields:

      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.

      I wonder what Zillows plan is for contracting renovations to avoid the problems of flaky, dishonest contractors.  

      1Reply
    9. Axel MeierhoeferPro Member
      Rental Property Investor · Escondido, CA · Member since 2017 · 679 posts · 550 votes
      8y
      @Tim Gordon love that last sentence I hadn’t heard during the last recession. At least I was smart enough to hold. Now I can’t wait for the day fear starts emerging
      1Reply
    10. Nancy Zhao
      San Diego, CA · Member since 2017 · 69 posts · 35 votes
      8y

      The market is very competitive but I still see plenty of deals around here where a retail investor able to source cheap subs and put in a little elbow grease themselves can net 10%(pretax).

      At the auction I'm seeing some of the bigger firms being outbid because they have too much overhead. The HGTV crowd who hand everything off to a GC is dead in the water - they're simply making the contractor money and hardly any themselves. 

      1Reply
    11. Nehemyah Khari
      New to Real Estate · Columbus, OH · Member since 2018 · 1 post · 1 vote
      8y
      @Eric Adobo I did the driving for dollars thing and every property I came across was owned by an LLC. Every property.
      1Reply
    12. Clifford Paul
      Rental Property Investor · Member since 2018 · 483 posts · 956 votes
      8y

      I don't think flipping is dead but I know a lot of flippers are. I've been using my F.L.O.P.S strategy for the last two years. I'm buying and selling 3 to 4 flops a month.

      What is my  F.L.O.P.S strategy?

      F - Find

      L- Losing

      O - Opportunities

      P - Purchase

      S - Sell

      With the help of my agent we identify out of town flippers and watch for their flip to become a flop. Main reason they are flops is because they hire the wrong contractor. I know all the contractors in my city and when I identify the one's who hire the crooks it's a 100% guarantee that it's going to be a flop. I'm stacking more cash to buy more when the market does bust. 

      Look for my up coming book on how to identify flops and my 20k seminars on buying flops not flips. "Joking" :D

      But seriously I do want to thank HGTV for increasing my wealth. 

      2Reply
    13. Chuks Erinne
      Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
      8y
      @DJ Dawson you nailed it! I also use the Homesnap app when driving for dollars. It helps me find info or address on a property when the street number isnt clear. I found driving for dollar to be amazing. When you mix it if a drip campaign, even better response. Then follow that up with offers in the mail, the cold call... RE...is all about engineering processes...test, adjust, implement, repeat
      1Reply
    14. Chuks Erinne
      Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
      8y
      @Matt Shields Thats why relationship matters in this business and its important with sellers. Your brand messaging and how we interact with sellers. Create value. I dont think Zillow is a threat. They cant buy every house. Not every seller will run to Zillow. Also, examine your "toolbox". If all you have in there is "flipping" then you flipping losing. You need other tools in your toolbox in the RE game. In this case, competition is non existent. Its nothing! I dont fear competition, i fear myself! I used to until i added more tools to my toolbox. Dont just buy ugly houses. Pretty houses need love too
      0Reply
    15. Kyle Godbout
      Investor · Omaha, NE · Member since 2015 · 366 posts · 184 votes
      8y
      I am concentrating on buy and holds right now because of the market. It’s much easier to acquire a home, rehab it, and pull most of my money back out for the next one than to make a good profit at flipping within the same tIme frame. The margin doesn’t have to be the same with my long term investments as someone else is ultimately paying for it.
      1Reply
    16. William Jenkins
      Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
      8y

      On flips I tend to be very conservative, so for the most part flipping is dead to me.  In general the margins in my area are not where they need to be to make it worth my while.  The risk of a market turn during a flip(s) is also concerning.  We are simply at a point in the cycle where there are too many people chasing too few deals.  At some point the cycle will turn and things will change.  I don't like trying to pick up pennies in front of a steamroller.       

      @Brandon Sturgill - Great point that many overlook!!  I feel like many don't factor in the tax consequences of a flipping business and simply focus on their pre-tax profit.     

      1Reply
    17. Todd Dexheimer
      Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
      8y

      Flipping is the opposite of dead, it is alive and booming! Ton's of competition, low margins, and lots of newbies flocking in. Eventually the market will crash (I still think we have 3-5 years left). Once the market crashes then flipping will be dead. The smart investors will come into the market and flip homes when flipping dies. When I started flipping in 2009, you didn't dare say that word. It was not acceptable to anyone to say that you flip houses. 

      1Reply
    18. Account Closed
      Member since 2018 · 70 posts · 89 votes
      8y

      I'm not a doom & gloomer but I definitely see the Phoenix market slowing in many of the market areas as the prices rise.  I watched last year as everything under $200k disappeared within hours of listing in any decent neighborhood.  A good chunk of our population is currently priced out of the market as the prices and rising interest take their toll.  I don't think we're in for a crash but I wouldn't doubt there's some noticeable slowing on the Phoenix horizon that will continue to grow over the next few years. 

      0Reply
    19. DJ DawsonBusiness Member
      Real Estate Agent · Sacramento, CA · Member since 2015 · 394 posts · 259 votes
      8y
      @Chuks Erinne I’ll have to get that app!! Thanks!
      1Reply
    20. Karen MargraveBusiness Member
      Moderator
      Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
      8y

      It depends on what market you're in.  

      0Reply
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