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

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

Chris SeveneyBusiness Member
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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

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

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

    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.

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    • Chris SeveneyBusiness Member
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      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      1w

      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.

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  • Marc Winter
    Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 3k+ votes
    1w

    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.

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    • Chris SeveneyBusiness Member
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      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      1w

      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.

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    1w

    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.

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

    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

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

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

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  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 535 posts · 227 votes
    1w

    @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.

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  • JD MartinBusiness Member
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    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
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    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.

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    • Chris SeveneyBusiness Member
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      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      6d

      I have a new build in Texas that I have had three contractors go under. Another one is in prison. What should have taken six months to finish a project has taken over a year because of a lack of qualified subcontractors and incompetence.

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    • Paul Blair
      Real Estate Broker · Dallas TX · Member since 2021 · 28 posts · 11 votes
      5d

      Hi Chris,

      Out here in Texas, it's like the wild, wild west. There are so many contractors. I'm a real estate broker and agent here in Dallas, and I can't keep contact with any contractors. It seems they all disappear when I need them.

      Clients are always asking for different things, and when I call them back, they never show up. I've almost had to stop referring them because they've never done or completed anything. They're always on the go with 17 other projects. It's been kind of annoying. What part of Texas are you building in?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6d

    Chris you notice only us old folks know what the heck your talking about..

    I am seeing deals come across my desk that are paying off other HML ers way more than in the past. Most I wont touch as Its not my job to bail out other lenders that have a distressed loan and or there is usually something wrong and I dont want to step into a mess.. Kind of like all the failed new construction in the Cape Coral area where there was such a huge case of FOMO not sure what the builders and or those hiring them were thinking.. How a builder can take on 40 build jobs in one year on scattered lots.. I mean just logistics and avaliablity of subs made that a non starter and now your seeing the crushing failures and huge money loss's

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    • Chris SeveneyBusiness Member
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      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
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      I'm closing this week on 50 defaulted bridge and fix-and-flip loans. This week.

      They're coming from a fund that is closing and wants to get these off their books.

      What is really interesting is, as I mentioned in another post, some of these never even took a construction draw. For others, when you look at the amount of work that was needed compared to what they had in the budget, it was head-scratching, such as $40,000 to renovate a property that was down to the studs. The fix and flip space, and speaking with some of the institutions, is a mess right now because many of these lenders were relying on third-party companies to verify renovation costs, which, Similar to companies that get desktop appraisals to verify an original appraisal. Sometimes the numbers match but don't make sense.

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  • Mike B.Pro Member
    Developer · Chicago, IL · Member since 2013 · 438 posts · 359 votes
    3d

    I don’t know the circumstances behind buying a project and letting it sit untouched, but your point about valuations is exactly why I want a backup exit before I buy.

    The ’08 crash opened my eyes to uncontrollable downside risk in a big way. What happens if we’re halfway through a flip and the market falls apart? What do we do then?

    The best protection I’ve come up with is making sure every flip also pencils as a rental. And by pencils, I mean underwriting the rents, expenses and refinance ahead of time so the property can cover itself without me constantly reaching into my pocket.

    If selling stops making sense, the plan is to refinance out of the short-term loan, rent it and wait rather than force a sale. I want that option supported by the numbers before we buy, not something we scramble to figure out when the listing sits.

    It doesn’t eliminate risk, but it gives us another way out.

    Underwrite conservatively and have a backup plan. The unthinkable has happened before.

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    • Chris SeveneyBusiness Member
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      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      2d

      Agree and if you have fixed debt or get fixed debt with low leverage it is much easier to ride out any storm as long as you do upkeep and have good tenants. But a lot of variables do exist

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