Remember Flipper the dolphin? A lot of today’s flippers are washing up on the beach

Tax Liens & Mortgage Notes
1dFollow

Remember Flipper the dolphin? A lot of today’s flippers are washing up on the beach

Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Anyone else old enough to remember Flipper? Smartest dolphin on TV, always swimming in to save the day.

Today’s flippers aren’t having the same luck.

I just got back from an industry event, and the mood among flippers was very different from a couple of years ago. Almost everyone I talked to has slowed way down. The reasons were the same over and over:

  • Interest rates are eating the margins

  • Valuations aren’t hitting what people underwrote

  • Deal flow has dried up, and what’s left is picked over

I see the other side of this. I run a fund that buys defaulted mortgage loans, and we’re seeing a significant uptick in flipper loans going bad. Most fall into two buckets:

  1. The renovation took too long. Holding costs and interest piled up until the numbers stopped working.

  2. The valuation was wrong from the start. The ARV was wishful thinking, and the exit was never there.

But here’s what’s blowing my mind. We’re now seeing loans from 12 to 24 months ago where the flipper never took a single construction draw. Never started the renovation. They bought the property, borrowed the money, and the house just sat there while the interest clock kept running.

That’s not a flip. That’s a dolphin floating belly up.

I’m curious what others are seeing as our NPL opportunities in this space are skyrocketing

7e investments53 Reviews
WebsiteView Page
3Reply
360 views

Most Popular Reply

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1d

In the commercial loan arena, we’re seeing a lot of both technical loan defaults (covenants violated due to ratio requirements not being met) and more substantial defaults (no payments, insurance cancellation, property taxes going unpaid).

Many of these investors are UNDER CAPITALIZED. So they come to us needing a loan to replace the loan in default, pay back taxes, and reinstate insurance, sometimes for necessary repairs/maintenance. The more delusional ones also have “cash out” at closing on their wish list.

What these investors/property owners need is not a loan at 13% replacing a loan at 7%; what they need is a capital infusion. Most refuse to accept this; others owe so much that a sufficient capital infusion will cost them a majority of their ownership. And once enough back taxes and deferred maintenance is entered into the equation, the investor/property owner may be beyond help.

Private Mortgage Financing Partners, LLC
WebsiteView Page
3Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    1d

    In the commercial loan arena, we’re seeing a lot of both technical loan defaults (covenants violated due to ratio requirements not being met) and more substantial defaults (no payments, insurance cancellation, property taxes going unpaid).

    Many of these investors are UNDER CAPITALIZED. So they come to us needing a loan to replace the loan in default, pay back taxes, and reinstate insurance, sometimes for necessary repairs/maintenance. The more delusional ones also have “cash out” at closing on their wish list.

    What these investors/property owners need is not a loan at 13% replacing a loan at 7%; what they need is a capital infusion. Most refuse to accept this; others owe so much that a sufficient capital infusion will cost them a majority of their ownership. And once enough back taxes and deferred maintenance is entered into the equation, the investor/property owner may be beyond help.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    3Reply
    • Chris SeveneyBusiness Member
      Moderator
      OP
      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      17h

      I was working with somebody who needed a capital infusion, which I made an offer to them for a percentage of the equity. They rejected it because they thought they were giving up too much and they had too much emotional equity in the property. I was very clear with them on my analysis that if they did not get a capital infusion, they would end up going under, and they did not believe me.

      My offer was not a threat, but I was trying to help somebody get out of a situation that I could see coming from a mile away. They had properties that were in disrepair, and they were underestimating the repair costs, the time it would take, the lost revenue, and the rents they were going to get. When you looked at it holistically, they did not stand a chance. I showed them this, and they just went with blinders on because they thought I was trying to gouge them on the percentage of equity.

      Fast forward six months later, and in properties that, if they would have sold when we were having initial discussions, the owner probably could have walked away with around $1 million. They ended up losing every single property, handed some of them back to the bank, and essentially lost everything.

      Investing in non-performing loans, we see this all the time right now, where these borrowers think they have so much more equity than they really do. I think they're the ones who are in the position of strength when the reality is they're not. I could name 50 stories of loans that I've had in the past six months that match this thought process because people still think it's 2022, where properties are appreciating, or they'll "figure it out." When in reality, they were not figuring it out. They're just a benefit to a market that was so overinflated. Anybody could have made money.

      7e investments53 Reviews
      WebsiteView Page
      1Reply
  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    1d

    Looking at the real default numbers, we are just starting to see where this correction will land.

    The same patterns repeat, and the markets that boomed the most in 2020--2023 are the ones that will take another few years to bottom.

    Keep your powder dry, and patiently wait for the right opportunity--it's inevitably coming.

    1Reply
    • Chris SeveneyBusiness Member
      Moderator
      OP
      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      17h

      100% agree. Markets with the biggest boom have seen the biggest bust. I did a post recently with some analytics from Resi Club that note that. One thing I always tell people in real estate and in life is that things always revert back to the mean.

      For those who wonder what that means, the basic statement of "what goes up must come down" is true. If historical interest rates are at 6% and there's a period when they're at 2.5% or 3%, they're eventually going to get back to that norm, if mortgage defaults are historically around 5% and, because of COVID, they're at 1%. They're historically going to move back towards that mean.

      The only time that does not happen is if there is some external force that comes into play, which, in a macro economy, is not very easy to have an impact over for a sustained period of time, which to me is decades.

      7e investments53 Reviews
      WebsiteView Page
      0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    1d

    I have seen this happen a lot over the years.. I have never tracked numbers of them so I can't say anything about a trend.

    when I inspect properties on the tax sale auction list I often see properties I lable as "Stalled Rehab" I never know why, just that it is obvious the rehabber did not know what they were doing and are stuck for some reason.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    1d

    Deal flow is better than much of the last decade. Sales volume has fallen significantly. Sellers that need to sell may need to sell at a discount especially if the property is distressed. So my view is deal flow is not a large issue.

    Interest rates do not impact flippers to the same extent as long term hold purchasers. In addition, HML rates have not increased at the same rate as conventional rates. 2021 rate 7%, today 10%. Similar points.

    That leaves valuation which I claim is a part of the crux of flipper failures. What I see as the problem is poor underwriting. Not just on the valuation, but rehab costs, holding costs, and selling costs. Rehab goes long, the rehab costs may increase and the holding costs will increase. If the sale takes longer than forecast, the holding costs increase.

    My 24 year old son has his first flip in progress (I have never done a flip). He ignored a lot of my advice on this flip. He is in negotiation for a near wholetail offer. I use near wholetail because he is continuing work during negotiations. If the buyer wants it cheap and livable, she needs to go under contract quickly as demo/work is progressing. If he can make $30k on a wholetail I would consider this a big win even though it is much less than he can potentially make on a flip.

    Good luck

    0Reply
  • Alan F.
    Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
    13h

    Interesting thread, which markets are being affected more? Sunbelt? Midwest?

    0Reply
  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 470 posts · 188 votes
    5h

    @Chris Seveney The loans with no construction draws may be the most revealing part. That suggests the problem was not simply an unexpected rehab overrun; in some cases the borrower may have lacked liquidity, contractor capacity, permits, or a workable plan from day one. Once the project stalls, high-cost debt turns time into the largest expense.

    This environment seems to be exposing deals that depended on appreciation, aggressive ARVs, and perfect timelines rather than a real margin of safety. For lenders and note buyers, the key questions may be whether the collateral is secure as-is, whether the remaining rehab still creates value, and whether foreclosure, modification, or a consensual sale preserves the most value. I would also be curious whether the increase is concentrated by market, lender, or borrower experience—and whether early-warning signs such as missed draws, expired permits, unpaid taxes, or insurance lapses are showing up consistently before default.

    [email protected]
    WEMBO CPA532 Reviews
    WebsiteView Page
    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    1h

    I'll say this not from the POV of the flipper but of the process - the construction process right now is a disaster. I am currently doing a new build and while it's an expensive and complicated house the biggest thing I have dealt with is a total lack of workforce. Every sub I have had work on the job has nothing but delays because none of them have enough workers, can find enough workers or keep enough workers for anything to go remotely smoothly. Some of it is political climate - my framer lost almost 2 weeks on my job last summer because the legal guys heard about ICE activity and wouldn't come to work while it was active - some of it is generational, where everyone under 30 wants to be hired as a supervisor at $50/hr - some of it is the loss of skilled technicians everywhere - some of it is material delays on anything that's not in-stock at Home Depot - some of it is operational cost related, guys doubling up on trucks because cash is too tight to get the other one fixed, etc. Overall it's a perfect storm of chaos.

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free