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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  • Sadrud-Din Williams
    Specialist · South Bay, CA · Member since 2015 · 132 posts · 34 votes
    8y

    House Flipping is alive and well here in Southern California. I have currently 13 projects personally and another 18 with my executive team of five. So NO it is not DEAD to us.

    Just Ask Mark who was not paid to be in this advertisement but sure is getting paid on his flips lol. https://vimeo.com/281998134

    0Reply
  • Sadrud-Din Williams
    Specialist · South Bay, CA · Member since 2015 · 132 posts · 34 votes
    8y

    House Flipping is alive and well here in Southern California. I have currently 13 projects personally and another 18 with my executive team of five. So NO it is not DEAD to us.

    Just Ask Mark who was not paid to be in this advertisement but sure is getting paid on his flips lol. The time is Now Just ask Mark

    0Reply
  • Daryl Winters
    Chicago, IL · Member since 2016 · 5 posts · 3 votes
    8y

    I love the Chicago market. It's certainly competitive, but I've been finding deals a plenty out here. It's all about who's willing to up the level of smarts & sweat equity.

    1Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    8y

    @Todd Dexheimer LOL!!!  Brings back memories.  Before 2008.... "I'm in real estate" = rock star.  After 2008.... "I'm in real estate" = pathetic loser and don't invite him to any more parties.  

    2Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    8y
    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. 

    I have often wondered why many of the biggest flippers/investors around town are all over social media, and putting in the bulk of their efforts into pitching education.  There just has to be more money in that, right?  Or maybe there is some combination of factors, like extra easy money plus access to deals that they can partner with students on, and/or something else -- a kind of strength in numbers thing.  It for sure gives them an advantage in SEO.  I think that's it overall - I suspect it basically drives their acquisition costs way down, and generates enough cash to run their marketing.  The rest is handled by their teams and processes.  

    1Reply
  • Stephen Herbert
    Lender · Sacramento, CA · Member since 2016 · 61 posts · 84 votes
    8y

    From a lending perspective, the industry is still very active, with certain areas feeling the compression more than others. In areas where the appreciation has added significant value to a long-time homeowners house, homeowners are putting their properties up for sale at top dollar (even though they need work) and are willing to keep the homes on market longer knowing that they'll sell to someone who is willing to make that their forever home.

    Investors don't have the same opportunities as before, they have different opportunities. As long as there is an aging stock of housing inventory, flipping will be alive, but the market is substantially tighter these days than even 3 years ago. 

    0Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    8y

    In Los Angeles it is getting more and more difficult to have wide margins.  The investors I work with are looking at homes with bad floor plans, low ceiling heights, etc. where amateurs don't have the vision and wouldn't consider that home.  We are still doing some new construction, but only in the luxury market where you can justify the higher cost of building.

    1Reply
  • AK Fowler
    Investor · Royersford, PA · Member since 2015 · 64 posts · 21 votes
    8y

    I don't believe House Flipping is dead. There's just more resources and patience that's needed to find a good deal. I hear about many are getting outbid which means to me (in my opinion) it probably wasn't a good deal. Especially now that the winning bid paid close to full price evaporating any possible profits. 

    I think you have to use all your resources in order to find a deal. I would say that if flipping is your main business strategy and livelihood, then it can be difficult since your trying to live off that stream. If it's just one of many real estate strategies then like any market, it goes up, it goes down and sideways. It will all work it's self out. Just keep going, don't quit. 

    0Reply
  • Shawn Ward
    Real Estate Investor & Consultant · Los Angeles, CA · Member since 2016 · 620 posts · 386 votes
    8y

    Nope

    0Reply
  • Leland Barrow
    Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
    8y

    What I have never liked about flipping is what I don't like about used car dealerships...you cannot control your inventory. How do you scale a business when your inventory is variable and dependent? Worrying about customer acquisition is a lot already, but having to worry about sourcing inventory adds such a complicated dynamic. It is an industry that created an entire sub-industry in wholesaling only because inventory is so difficult to source.

    I can see it as a side gig, hobby, or opportunistic; but not as a scale-able business with long term viability. 

    Gamble and play the odds in Vegas, but not in business.

    1Reply
  • Matt Shields
    OP
    Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes
    8y

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

    1Reply
  • Nancy Zhao
    San Diego, CA · Member since 2017 · 69 posts · 35 votes
    8y
    Originally posted by @Matt Shields:

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

     So, Zillow bought the property for 246k and now listed it for 254k? Is this some kind of new 11th dimensional flipping strategy?

    1Reply
  • Mark Hughes
    Rental Property Investor · Aurora, CO · Member since 2018 · 288 posts · 117 votes
    8y
    @Matt Shields Margins are too tight in many markets right now, that’s for sure
    0Reply
  • Matt Shields
    OP
    Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes
    8y
    I'm sure they have some broker fees not shown, but still probably less margin than I can opperate at. 

    Originally posted by @Nancy Zhao:
    Originally posted by @Matt Shields:

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

     So, Zillow bought the property for 246k and now listed it for 254k? Is this some kind of new 11th dimensional flipping strategy?

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Matt Shields:
    I'm sure they have some broker fees not shown, but still probably less margin than I can opperate at. 

    Originally posted by @Nancy Zhao:
    Originally posted by @Matt Shields:

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

     So, Zillow bought the property for 246k and now listed it for 254k? Is this some kind of new 11th dimensional flipping strategy?

     Matt what is Zillow doing.. ??? are they as a corporation buying homes like open door and other institutional investors.. ???  are they showing up at auction like Blackstone did back in 2012.. ???   Or do you think they are just buying listings. ?? to make realtor fee's which seems like not a great use of capital. ??

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Nancy Zhao:
    Originally posted by @Matt Shields:

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

     So, Zillow bought the property for 246k and now listed it for 254k? Is this some kind of new 11th dimensional flipping strategy?

    Maybe its like Tesla selling cars for less than it cost to build.. and those of us who are buying them are benefiting. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Leland Barrow:

    What I have never liked about flipping is what I don't like about used car dealerships...you cannot control your inventory. How do you scale a business when your inventory is variable and dependent? Worrying about customer acquisition is a lot already, but having to worry about sourcing inventory adds such a complicated dynamic. It is an industry that created an entire sub-industry in wholesaling only because inventory is so difficult to source.

    I can see it as a side gig, hobby, or opportunistic; but not as a scale-able business with long term viability. 

    Gamble and play the odds in Vegas, but not in business.

    Yup and the massive amount of private capital chasing flippers .. and driving down the pricing.. I have never seen private capital priced so close to bank rates .. I mean you can get private HML at 9% apr is your experienced and banks are at 6 to 7 for their best clients.. even if you can get them to fund flips which for most is a none starter at least in our market.

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  • Matt Shields
    OP
    Broker · Phoenix, AZ · Member since 2015 · 351 posts · 273 votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Matt Shields:
    I'm sure they have some broker fees not shown, but still probably less margin than I can opperate at. 

    Originally posted by @Nancy Zhao:
    Originally posted by @Matt Shields:

    I just received my first "Owned by Zillow" advertisement. Interesting that it is listed more than the Zestimate.

     So, Zillow bought the property for 246k and now listed it for 254k? Is this some kind of new 11th dimensional flipping strategy?

     Matt what is Zillow doing.. ??? are they as a corporation buying homes like open door and other institutional investors.. ???  are they showing up at auction like Blackstone did back in 2012.. ???   Or do you think they are just buying listings. ?? to make realtor fee's which seems like not a great use of capital. ??

     Yes very similar to Open Door and Offer Pad except they control real estate information, Zillow now has three times the traffic of Realtor.com. They are the Google of real estate, and information gives you power. I don't see them at the auctions, but I think they will suck up most of everything else eventually. 

    0Reply
  • Renee Ren
    Real Estate Agent · Irvine, CA · Member since 2014 · 68 posts · 54 votes
    8y

    Depends on your area. Some experienced flippers are still doing hundreds of deals every year in today's market. Los Angeles is crazy but investors are still flipping houses. There is always business out there I can't say it is dead but definitely so much difficult for a new beginner to find any decent deals. 

    1Reply
  • Account Closed
    Los Angeles, CA · Member since 2018 · 95 posts · 46 votes
    7y
    Originally posted by @Jay Hinrichs:
    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..

    Hi Jay,

    i don't know anything about the hard money lending business beside being on the client side but how can a HML investor possibly make more than 8-10% cash on cash annually? I get that a HML company manager can do pretty well if he raises significant amounts of money from investors, but for the investors themselves i've never understood why they would lend money (often small amounts below 500k) for high risk projects and junior position even for 10%. Maybe am i missing something?

    For sure most flippers have miserable margins and will get wipped out at the next market downturn, but for those who find decent deals with say 20% net margin and have 20% equity in the project they could double their money in the span of less than 6 months

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Account Closed:
    Originally posted by @Jay Hinrichs:
    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..

    Hi Jay,

    i don't know anything about the hard money lending business beside being on the client side but how can a HML investor possibly make more than 8-10% cash on cash annually? I get that a HML company manager can do pretty well if he raises significant amounts of money from investors, but for the investors themselves i've never understood why they would lend money (often small amounts below 500k) for high risk projects and junior position even for 10%. Maybe am i missing something?

    For sure most flippers have miserable margins and will get wipped out at the next market downturn, but for those who find decent deals with say 20% net margin and have 20% equity in the project they could double their money in the span of less than 6 months

    its about scale.. in our day we had north of 30 million working and we were making 10% NET just on the delta.. so it was a nice income.

    agree though those that take junior positions for 10% take on huge risk.  

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