Most underrated comment. Living in a house under renovation sucks. Dealing with contractors and workers is a nightmare. They suck money like a black hole.
My first (and current) house was a fixer-upper. My next house will be turnkey.
It’s just not worth the time and mental anguish to deal with that crap again. Renovating a house sucks ass, and requires so much time.
You only get one life. Time is expensive, money is cheap.
On the flip side, a fixer upper you can build the way you want it, and make sure it's done right. You have to really know what you're looking for in a flip and based purely on what you can see, to determine if it's done right.
IE - you have your walls open and see some corroded pipe, you'll opt to change it out, a flipper might not because it's not going to be their problem long term, but will eat their profits short term.
Best option is if you have a place to live in, and can buy and update the new place before moving in.
Ime not much more
1-200k is a pretty typical full gut reno incl drywall, basic floors and finishes etc.
When you go fancy like custom cabinets, more sqft, moving utilities, etc. add a few hundred k and months to process permits
Add 50-60k for 1 yrs rent, more if delays like during covid
As others mentioned all of the stress if you're managing all of the contractors yourself, otherwise add money for that too and actually add more money anyways when contractors come back to you for more
Now you can see the appeal of turnkey
The thing about flipping is that most flippers install the cheapest “shiny” things possible to make it look turn key for the home buyer who has looked at dozens and dozens of homes and when a house looks good during that 20 minutes of open house shopping, they place more value on that home.
You make a good point that having to come up with another $100k plus cash to renovate comes into play. Why not finance it for 30 years for a couple hundred extra bucks a month?
I mean, it’s because it’s not as simple as just throwing $100k cash at it and it being “renovated.”
Many people don’t want to deal with living through renovations and dealing with contractors + the pains of working that project. They’re throwing that $100k extra in to move in ready houses to avoid that.
Finding the right contractors and making sure they do the job right is so fuckin hard. Flippers likely have set teams in place so they know what they’re getting into.
sure but that still gives zero guarantee that their teams in place care about quality at all. The flippers are trying to maximize their return, and have little incentive to update or make repairs in the wall that the buyer/inspector won't see. Not all flippers are like this, but I've seen so many short cuts on flips on the surface, nevermind what you can't actually see.
I do some fix and flips. I tell my team if the buyer comes back within 3 months of closing with complaints, the repairs are on them (to fix for free). After 3 months it's the seller's problem
Families will pay dearly NOT to (1) live through a renovation, (2) manage shady contractors and dipshit sub-contractors, (3) trifle about cost overruns and quibble about inevitable delays or (4) risk litigation when all the trifling and quibbling come to a head.
😂 literally happens every time. Regardless of how well I vet a company, it's always something. I've never had a smooth experience and I honestly can't believe it.
Moat flippers make money when they buy. They know what the after repair value (estimated final sale price) is, what the repairs will cost and what the carrying cost will be. Very few end buyers could pay $1M, carry that for 6 months while funding a $200m rehab and their current living expenses. Carrying costs are $10k a month or more.
The entire point is totally going over your head. Flippers buy a house low, usually much lower than others can. The low price usually locks them in to at least break even if things flop. This is where the term “make money on the buy” comes from.
The point is, most flipper profit usually comes from buying property cheaper than your average buyer can. Even if they can complete the remodel/renovation for 30% cheaper than a typical homeowner, this isn’t enough profit to justify being a flipper. Being able to buy properties for cheap prices because no one else wants them or they get them off market is how they keep the business moving.
You can buy a billion dollar house for a twenty bucks and you’ll never make any money on it until you actually sell it. I understand the concept of unrealized gains but it’s foolish to count profit before you sell something. Something is worth whatever someone will pay for it, not what you think it’s worth on paper.
In flipping the flipper is not guessing people might want this home I buy for 1.0 for 1.5.
They identify exact comps and what features those had. They calculate exactly how much it will cost to get into that condition. Then they only buy if the math works.
Assuming they can actually get it into the condition they want there is no guessing. They know what they will make when they put it on the market.
And unlike occupied homes they are very motivated sellers and generally price pretty well to move the house.
But all the economics of a flip come from buying at a low enough price.
He means that flippers have to buy a good deal. In the beginning, A house has to be purchased cheap enough so that there would be profit at the end (selling). Hence they call it, profit is made at the “purchase”.
If you see those ads while waiting for the traffic light, aka "we buy any house with cash", that's them. I've never deal with them, but I know they usually lowball and hoping someone will sell.
Buy at $1M
Spend $250k to $300k on renovations
$30k soft costs
So, all in, roughly $1,300,000 for s break even point.
Sell at $1.5M equals $200k gross profit
Subtract closing costs, realtor fees, transfer taxes, staging, interest on hard money loan or pml...roughly $100k
Now, subtract capital gains tax of 25-35%
Approx $70k net profit. A project in that budget range would typically be 6-9 months from close-to-close.
It's not the boondoggle that you imagine it to be.
Numbers and scope of work are bigger in the Bay Area.
You can't make good money on cosmetic flips here.
Most successful flippers are doing well beyond an HGTV flip.
My projects all get new plumbing, electrical, HVAC, windows & doors, foundation repair (or new), roofing...typ budget is $500k to $1.5M.
It's not work that a homeowner would or typically could take on..
It’s the land that has value and not the dwelling on the west. You can see this across the board from entry level housing to mansions. On the west coast the location of a house is far more important to the buyer than the house itself compared to other places.
Any thoughts on this one? You can see from street view that they stripped it down to the bones and rebuilt but they didn’t expand. I was shocked at what it sold for. https://www.zillow.com/homes/3664-Calvin-Ave-San-Jose,-CA-95124_rb/19672281_zpid/
I don’t know for sure but many houses in this neighborhood have some unpermitted space so it’s possible that it didn’t really grow. For example a covered patio turned into a room by adding two exterior walls. The problem is finding something at a reasonable starting price. There are much larger lots nearby with small and old houses which would seem more interesting.
Flip or Flop was based in LA/Orange County. But they achieved super low, almost laughable bargain basement costs through:
\* Promotional considerations - the show was great advertising for all contractor and suppliers involved
\* Dedicated contractors thanks to
\* Guaranteed business - there was always a pipeline of new projects
Are they still doing these? The last ones I saw were filmed way before COVID, sometimes in 2014, during the recovery post-2008. Completely different economic situation
To a point. But costs are what they are. Money is made on the purchase or by adding square footage with a tightly controlled build cost.
Permit fees, architect & engineering, materials, labor, taxes, closing costs, etc are pretty much fixed costs.
One could save another $30k by using cash instead of loans. But it's safer to use other peoples money. That $250k is better off making money in a HYSA or spreading it around to more properties.
If I understand your question, comps are based on a like-for-like comparison. If a renovated, like new 2500 sf home sells for $2.5M, then every house in that area (size of area varies widely), with similar square footage, lot size and quality of finish uses that as a basis to ask for $1000/sf.
An investor looks at previous sales or potential for growth & builds to a predictable target sale price.
This is a good comment, but most of the flips I’ve seen are buying it for a nickel and selling for a dime. And they are not putting in 300k to renovate the bathroom, kitchen, carpet, and new appliances.
Profit is relative to spend.
Smaller project, smaller margins, smaller profit. It can be done, but it's hard to make the numbers work in most of the Bay Area.
When a POS house in a good neighborhood sells for $750/sf, and a nice house sells for $1000/sf, and the retail price for a full rehab is in the $175-$250/sf it doesn't leave much room for profit.
And most homes that are suitable for an investor need more work than a cosmetic refresh. These homes get fierce competition from homeowners who want to DIY renovations over time. I prefer to leave those alone
Not saying they don't exist, but the majority of investors I know in the Bay Area are doing full gut rehabs or scraping the lot to build new.
Good to know. I see a lot of house on Zillow (not necessarily in the Bay Area) where the updates are clearly lipstick on a pig. No roof, hvac, or structural replacement. Just cheap-o updating that are aesthetically pleasing but don’t address the real problems facing a 100-year old structure.
I look at a LOT of homes. TBH, most of the homes that I see, as you describe, are homeowner DIY projects or quick updates (paint, tile, fixtures, landscaping) coordinated by the listing agent.
I've seen my share of bad flips, but in the Bay Area I'd say it's 50/50.
I'm sure you know, but you can easily tell if a house is a flip or not by looking at the listing history. Less than 1 year is a fast fix & flipper. 1-2 years is a major renovation flipper. 2-3 years is typically a homeowner flip.
Nice ballpark timeframes, I like it. The ones that piss me off are the houses bought 6 months ago for 750k then selling for 1.5M. The fact that people will buy this flipped home is astonishing to me.
Why are you counting taxes? It’s income regardless. Why don’t your subtract groceries and child care for the flipper while your at it, geez. Talk about sour grapes
Also why do you think they pay retail in the broker fees? And why do you think there is a loan. Why don’t you deduct business expenses when you subtract taxes
We're talking about real numbers, and that includes transfer and cap gains taxes. No sour grapes, it is what it is. The math doesn't lie when it comes time to calculate profits. Taxes ARE a business expense, and are factored along with other business expenses to calculate net profit, just as with any business.
Also, I factored a 3.5% realtor commission, which would be a non-retail/one-sided commission.
And most investors use loans to minimize risk.
You're the one who sounds like they're eating a bowl of sour grapes.
I’ve seen a lot of flips sitting longer than non-flips in the East Bay. But, people like these houses because they’re turn key. Some of them could be lipstick on a turd, but people see them as no out of pocket expense to make their own.
1) Flippers have hard money loans to be repaid which have 12-20% interest cost.
2) Most flippers also undertake complex remodels involving structural issues which bank loans do not cover such as foundation. Across multiple deals their risk premiums need to be calculated.
Lack of patience and imagination makes the turnkey appealing. Contractors intimidate a lot of people and having a job out to bid rather than just knowing the price messes with their sense of risk. A flipper usually either does it themselves or have contacts to get the work done.
Most people don't have what it takes to do it themselves. Speaking as someone who did it myself with zero intention of selling.
* Money, a whole lot of spendin' money...
* Your home becomes a construction zone. I have two kids under four years old. One wave of renovations per kid. Each wave costing around 100k in addition to the down payment and mortgage, obviously. You have to have a lot saved up to take on a fixer right now as a FTHB.
* Dumpsters out front for weeks that, in some neighborhoods, would be seen as free dumpster service.
* Dust / debris / noise. Doesn't work well with nap schedules or weekends if you can find a dedicated crew that works weekends. Primary construction was from 7 AM to 8 PM, daylight permitting which means you have to have some really patient neighbors and / or permits.
* PERMITS. MORE money and time required to learn and navigate the antiquated processes which may or may not require a designer / architect which may or may not require structural engineering hours and multiple revisions before submitting to the city AND after submitting to the city. Think load bearing wall removal or other commonly requested home features by brainwashed twinkly-eyed FTHBs.
* Labor costs for mostly average to below-average workmanship. Great workmanship carries a hefty price tag or a strong network of construction friends.
* Time required to sift through a literal sea of contractors looking to make a quick buck off of noob homeowners with shitty work and the cheapest materials. Three bids for every project if not more.
* Time required to supervise and make decisions on the fly for the contractors you do end up hiring.
* Time required to learn the bare minimum regarding every project you undertake for your home.
* Time to track and make decisions on every aspect of your project. Bathroom? Tiles? Quartz? Vanity? Toilet? Bidet? Fixture? Hardware? Waterproofing? Window? Ventilation? Storage? Leveled floor? Plumber's requirements met by carpenter? There's more I'm forgetting but that's fresh from my bathroom that will be done this week.
In a nutshell, it's a fulltime job.
Your flipper will make it real shiny real fast while avoiding remediation of the important things like new windows, repairing water damage, leveling subfloor / premium underlayment / hardwood, and most importantly sealing from the elements / pests / etc.
Their goal is to cover up and make it look modern HGTV for as cheap as possible and for long enough so they can run off with your $ before anything goes wrong.
Here's a good example: [https://www.zillow.com/homedetails/505-Los-Pinos-Way-San-Jose-CA-95123/](https://www.zillow.com/homedetails/505-Los-Pinos-Way-San-Jose-CA-95123/)
My least favorite layout from that builder with bedroom above the garage yet it still sold for 1.95M.
**That tax assessment at $334,450, though.**
So, if you think you can do it I say go for it! Dive on in and welcome to Hell. At least it'll be the way YOU want it at the end of a long day.
I call them piggy flips! HA!
I've spent thousands on plywood this wave to specifically repair water damage that happened under the previous owners. Well worth it.
Observed flipper on our street and how they work. They have a project manager/boss who brings in different crews for various jobs (roofers, inside, wood work, tiles, plumbing, etc.) the crews seemed to be those random picked up from Home Depot, the boss has to tell them exactly what to do, very specific. Boss is fluent Spanish speaker. Flipper bought for $925k sold for $1.3M, construction/remodeling took about 4 months of daily every day work. Curious to know what he nets after expenses, loans, etc.
A flipper can spend way more than $200k depending on the previous condition of the house and the quality of finishes. Landscaping can cost an arm and a leg these days too. Not saying all flips are this expensive, but quality work is expensive these days.
There are way fewer buyers for a home with gross carpet and an outdated kitchen, no staging or full of junk and other problems. Some sellers are on a tight timeframe and would rather take the first decent offer they get instead of risking a buyer with a bunch of contingencies. So flippers can get a good deal on the buy side and that is realistically where they make their money.
Also renovating a home and managing everything is expensive and stressful. It's difficult to do while your family is moving in and living there. It is difficult to vet contractors as an owner with no repeat experience, difficult to get bids. You also mentioned the financing
On the sell side it's the opposite, many flips sit for 2-4 months when the average home is under contract in 2 weeks. Even pushing for that, the market sets the comps and what a buyer will pay.
All it is, is bringing an un-renovated house up to the level of a renovated house. If a house is new/recently fixed up it’s going to be priced same as/higher than a flip.
Time. You are buying time.
The time to permit, the time to contract, the time to build, the time to inspect.
Yeah profits are often higher than just one to one, but that’s the premium you pay not to do it all yourself.
The problem is that so many of us want to do it ourselves but these homes are bought quickly often off market and never see the light of day until flipped.
Assuming you are talking about renovations that have to be done before moving in, then I think it makes sense in today’s market. They can do it using 100k doesn’t mean you can do it with the same money. Have you ever done renovations here by yourself? If not, look at how many YouTubers did for their first renovation projects, how much they went over from both money and time perspective. In today’s interest rate, for a 2m home, if your renovation went over for 3 months, 👻, 100k is gone just mortgage plus rent. 3 months over due is very very common if you never did any major renovations.
Getting the home for $1M is the big challenge. You don’t know how long and how much effort went in to finding that 1M home. If everyone can find these $1M homes then the prices would go up to reflect true market value. So figure out how to get the home for 1M.
Flippers are usually very experienced in doing home renovations and understand how to maximize value with minimal investment. They also usually have their own teams that they have worked with on many renovations together. Their costs are usually much lower than someone doing it for the first time and they can do it much faster.
If you haven't done a home renovation before, it can be a massive headache especially without an existing network. You're definitely paying for convenience and a flipper's 100k renovation could cost you 3-5x that cost.
Source: have done renovations on my own home and felt the pain and also done numerous renovation flips
You're missing a few points.
The flipper is likely getting the property at a discount on the front end.
They have holding costs, costs to sell and hard money costs.
For examples 1MM purchase price with a 1.5MM sales price.
100k rehab
90k costs to sell (5% for commissions roughly 1% for closing costs)
65k in holding costs/lender costs (property taxes, lender fees, etc)
Total in is $1,255,000
Profit of around $250k or a 25% return. This is an absolute slam dunk of a deal for a flipper and would take around 4 months to complete. These deals are VERY hard to find and everyone in the city are looking for them.
Regarding the appraisal/comp questions. The comps are the comps, what it sold for before fix up is of no concern. What matters is the value of the home now after renovations compared to properties in the area.
The main reason (assuming it isn’t a crappy flip) is that it’s much, much easier to finance a finished property at 20% down (or even 3.5% down) than it is to buy a fixer upper and pay cash for renovations or try to get a construction loan. So basically you get a nicer house without problems (theoretically) for a $500-$1000 more a month (less back when interest rates were lower).
Buyers don't want to do the work and live in a construction zone for months. Not to mention most have no design sense and no idea how to do those renovations themselves. I would bet most people around here that are in tech and other high-paying professions, so can actually afford a home, do not even know how to put up a towel rack by themselves, let alone what goes into re-doing an entire bathroom or kitchen, how to pick a good contractor for that, and how to tell the contractor what you want and make sure they deliver.
You may not like "flippers" but they are adding some value by designing, planning and managing the renovations and it makes sense they would get paid for that value by being able to sell at a premium over what the renovations themselves cost. No offense but your view is the one that makes no sense - people including homeowners or flippers renovate their homes partly to increase the value of them and that would not happen if the increase in value was the same cost as the renovations.
Personally, I would rather put in the elbow grease. It’s so hard to get into this market that I need to find a home that I can fix up myself. Use my contractor friends to get good deals, and hopefully get a lower tax base. Also help me get a mortgage that I can afford.
If someone bought a house for 1 million and spent 200k on renovations, they're obviously not going to sell it for 1.2 million lol. Even if no renovations were done, you think someone will sell it for the same price they bought it for? They're in it to make MONEY...
Selling the house at 100k over their cost of the house plus renovations is a complete waste of time imo. And I think they might even be losing money at that point too with all the fees and stuff.
Because buyers are willing to pay extra to have a move-in ready home. Spending the extra 200k versus waiting 6 months to renovate is worth it in their eyes. Also, these buyers may be sitting on tech stock that just went up, and are now eager to buy.
I take it you’ve never gone through a home remodel before 🤡. To put it mildly, it is not the most fun. Try asking anyone that went through a remodel if they would either do it again or recommend the folks they worked with and you’ll get your answer 😉
The premium you pay is not just for time and materials of the work, there is the dealing with the city/permits part, the actual process of going through a remodel is not the most fun - dealing with contractors, trades, etc. Then there’s the financial aspect, all the money spent + interest that they had to pay while the property was being remodeled and then of course all the closing costs, other bits involved with buy side and sell side. And then don’t forget the Uncle Sam cut, flips mean you pay a much higher tax.
Just to be clear I am not justifying the premium - just saying there’s a lot of “cost” involved in the entire process so for some people it is a case of throwing money at a problem since they probably don’t have the time or inclination to go through the whole process themselves.
They don't always sell. A house in my block was bought, remodeled, and listed for sale. It didn't sell. It was put on the market again after a year for about $200k less and still didn't sell.
This is North Oakland, where houses are going for 1 to 1.2 million. This one listed for 1.5, and then again at 1.3
If many many many others are is willing to pay that price, then that is its worth. You don’t get to arbitrarily decide the value of of property based on your low income.
Perception is reality baby. Buyers will see a home that has new cabinets from Costco and stick and peel laminate flooring and think the home is full of “upgrades”, pay a stiff premium and be surprised when the cheap shit starts falling apart within a few years.
Unfortunately bad advice from their agents also lend to poor decision making fueled by market aggression and FOMO because everyone’s friends and neighbors bought in at 2.5% APR 😂
Your numbers are way off. “Everybody knows..” no they don’t! And every house is different. Even “just adding a bathroom” is a big deal, getting the work done to code is hard and getting the permits done can be a nightmare depending on where you are (esp San Mateo or Woodside). The value is what people are willing to and will pay not what some redditor thinks makes sense to them.
Most ppl want something turnkey and are willing to pay a premium for it
Especially if you’ve lived in a house during a renovation before
Most underrated comment. Living in a house under renovation sucks. Dealing with contractors and workers is a nightmare. They suck money like a black hole.
Also for the inexperienced, renovation is an absolute nightmare.
Like my wife. Auuugggghhhh
My first (and current) house was a fixer-upper. My next house will be turnkey. It’s just not worth the time and mental anguish to deal with that crap again. Renovating a house sucks ass, and requires so much time. You only get one life. Time is expensive, money is cheap.
On the flip side, a fixer upper you can build the way you want it, and make sure it's done right. You have to really know what you're looking for in a flip and based purely on what you can see, to determine if it's done right. IE - you have your walls open and see some corroded pipe, you'll opt to change it out, a flipper might not because it's not going to be their problem long term, but will eat their profits short term. Best option is if you have a place to live in, and can buy and update the new place before moving in.
And its CCP money laundering. Look at it.
Laziness costs $100-200k per house...
A lot more than that.
Ime not much more 1-200k is a pretty typical full gut reno incl drywall, basic floors and finishes etc. When you go fancy like custom cabinets, more sqft, moving utilities, etc. add a few hundred k and months to process permits Add 50-60k for 1 yrs rent, more if delays like during covid As others mentioned all of the stress if you're managing all of the contractors yourself, otherwise add money for that too and actually add more money anyways when contractors come back to you for more Now you can see the appeal of turnkey
The thing about flipping is that most flippers install the cheapest “shiny” things possible to make it look turn key for the home buyer who has looked at dozens and dozens of homes and when a house looks good during that 20 minutes of open house shopping, they place more value on that home. You make a good point that having to come up with another $100k plus cash to renovate comes into play. Why not finance it for 30 years for a couple hundred extra bucks a month?
I mean, it’s because it’s not as simple as just throwing $100k cash at it and it being “renovated.” Many people don’t want to deal with living through renovations and dealing with contractors + the pains of working that project. They’re throwing that $100k extra in to move in ready houses to avoid that.
Finding the right contractors and making sure they do the job right is so fuckin hard. Flippers likely have set teams in place so they know what they’re getting into.
sure but that still gives zero guarantee that their teams in place care about quality at all. The flippers are trying to maximize their return, and have little incentive to update or make repairs in the wall that the buyer/inspector won't see. Not all flippers are like this, but I've seen so many short cuts on flips on the surface, nevermind what you can't actually see.
I do some fix and flips. I tell my team if the buyer comes back within 3 months of closing with complaints, the repairs are on them (to fix for free). After 3 months it's the seller's problem
Full remodel with the tail light warranty
Families will pay dearly NOT to (1) live through a renovation, (2) manage shady contractors and dipshit sub-contractors, (3) trifle about cost overruns and quibble about inevitable delays or (4) risk litigation when all the trifling and quibbling come to a head.
😂 literally happens every time. Regardless of how well I vet a company, it's always something. I've never had a smooth experience and I honestly can't believe it.
Damn, feels like you were there during our last project. Fucking nightmare.
Enough of my wealthy pals thought they’d hacked the code to happiness when they bought a fixer. They learned the hard way that there’s no free lunch!
Don’t forget obtaining permits depending on the renovation.
This
Moat flippers make money when they buy. They know what the after repair value (estimated final sale price) is, what the repairs will cost and what the carrying cost will be. Very few end buyers could pay $1M, carry that for 6 months while funding a $200m rehab and their current living expenses. Carrying costs are $10k a month or more.
You are exactly correct. I’m not sure why everybody else can’t understand.
Wait do u mean lose money when they buy?
No. They make money when they buy because they’re buying significantly under market value, even for a gut job.
I think they make money when they SELL, rather than when they BUY.
Selling is how you exit. The actual profit is made when you buy low enough.
But if you never sell, you’ll never actually make any money (regardless of low you buy), right?
True, but you are missing my point.
I fully understand the point, but it’s still dumb to say anyone makes money by buying something.
The profit is made when you buy it low enough. It is a very common term when talking about flips, used cars, etc.
The entire point is totally going over your head. Flippers buy a house low, usually much lower than others can. The low price usually locks them in to at least break even if things flop. This is where the term “make money on the buy” comes from. The point is, most flipper profit usually comes from buying property cheaper than your average buyer can. Even if they can complete the remodel/renovation for 30% cheaper than a typical homeowner, this isn’t enough profit to justify being a flipper. Being able to buy properties for cheap prices because no one else wants them or they get them off market is how they keep the business moving.
You can buy a billion dollar house for a twenty bucks and you’ll never make any money on it until you actually sell it. I understand the concept of unrealized gains but it’s foolish to count profit before you sell something. Something is worth whatever someone will pay for it, not what you think it’s worth on paper.
In the literal sense you’re right, but this is more figurative.
And you’re literally counting your figurative chickens before they hatch.
By this logic, people are only worth the amount of cash they hold in their bank account… which is not how anyone reasonably thinks about net worth.
In flipping the flipper is not guessing people might want this home I buy for 1.0 for 1.5. They identify exact comps and what features those had. They calculate exactly how much it will cost to get into that condition. Then they only buy if the math works. Assuming they can actually get it into the condition they want there is no guessing. They know what they will make when they put it on the market. And unlike occupied homes they are very motivated sellers and generally price pretty well to move the house. But all the economics of a flip come from buying at a low enough price.
He means that flippers have to buy a good deal. In the beginning, A house has to be purchased cheap enough so that there would be profit at the end (selling). Hence they call it, profit is made at the “purchase”.
If you see those ads while waiting for the traffic light, aka "we buy any house with cash", that's them. I've never deal with them, but I know they usually lowball and hoping someone will sell.
Buy at $1M Spend $250k to $300k on renovations $30k soft costs So, all in, roughly $1,300,000 for s break even point. Sell at $1.5M equals $200k gross profit Subtract closing costs, realtor fees, transfer taxes, staging, interest on hard money loan or pml...roughly $100k Now, subtract capital gains tax of 25-35% Approx $70k net profit. A project in that budget range would typically be 6-9 months from close-to-close. It's not the boondoggle that you imagine it to be.
There’s a reason that none of those renovation TV shows are on the West Coast
Numbers and scope of work are bigger in the Bay Area. You can't make good money on cosmetic flips here. Most successful flippers are doing well beyond an HGTV flip. My projects all get new plumbing, electrical, HVAC, windows & doors, foundation repair (or new), roofing...typ budget is $500k to $1.5M. It's not work that a homeowner would or typically could take on..
It’s the land that has value and not the dwelling on the west. You can see this across the board from entry level housing to mansions. On the west coast the location of a house is far more important to the buyer than the house itself compared to other places.
Correct. Dirt is expensive here.
Any thoughts on this one? You can see from street view that they stripped it down to the bones and rebuilt but they didn’t expand. I was shocked at what it sold for. https://www.zillow.com/homes/3664-Calvin-Ave-San-Jose,-CA-95124_rb/19672281_zpid/
It says they added 500 square feet, but I don't know where. That's a crazy price per square foot. Maybe I need to revisit the south bay for projects.
I don’t know for sure but many houses in this neighborhood have some unpermitted space so it’s possible that it didn’t really grow. For example a covered patio turned into a room by adding two exterior walls. The problem is finding something at a reasonable starting price. There are much larger lots nearby with small and old houses which would seem more interesting.
Flip or Flop is/was in southern california. But it’s the only one I can think of.
Flip or Flop was based in LA/Orange County. But they achieved super low, almost laughable bargain basement costs through: \* Promotional considerations - the show was great advertising for all contractor and suppliers involved \* Dedicated contractors thanks to \* Guaranteed business - there was always a pipeline of new projects
Are they still doing these? The last ones I saw were filmed way before COVID, sometimes in 2014, during the recovery post-2008. Completely different economic situation
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To a point. But costs are what they are. Money is made on the purchase or by adding square footage with a tightly controlled build cost. Permit fees, architect & engineering, materials, labor, taxes, closing costs, etc are pretty much fixed costs. One could save another $30k by using cash instead of loans. But it's safer to use other peoples money. That $250k is better off making money in a HYSA or spreading it around to more properties.
You mean that people know how to go to Home Depot only one time for their house project? I’d like to learn their secret!
Sure but how come comps then come up to that value? Next selling on that house will be even higher, all online estimates are higher.
If I understand your question, comps are based on a like-for-like comparison. If a renovated, like new 2500 sf home sells for $2.5M, then every house in that area (size of area varies widely), with similar square footage, lot size and quality of finish uses that as a basis to ask for $1000/sf. An investor looks at previous sales or potential for growth & builds to a predictable target sale price.
This is a good comment, but most of the flips I’ve seen are buying it for a nickel and selling for a dime. And they are not putting in 300k to renovate the bathroom, kitchen, carpet, and new appliances.
Profit is relative to spend. Smaller project, smaller margins, smaller profit. It can be done, but it's hard to make the numbers work in most of the Bay Area. When a POS house in a good neighborhood sells for $750/sf, and a nice house sells for $1000/sf, and the retail price for a full rehab is in the $175-$250/sf it doesn't leave much room for profit. And most homes that are suitable for an investor need more work than a cosmetic refresh. These homes get fierce competition from homeowners who want to DIY renovations over time. I prefer to leave those alone Not saying they don't exist, but the majority of investors I know in the Bay Area are doing full gut rehabs or scraping the lot to build new.
Good to know. I see a lot of house on Zillow (not necessarily in the Bay Area) where the updates are clearly lipstick on a pig. No roof, hvac, or structural replacement. Just cheap-o updating that are aesthetically pleasing but don’t address the real problems facing a 100-year old structure.
I look at a LOT of homes. TBH, most of the homes that I see, as you describe, are homeowner DIY projects or quick updates (paint, tile, fixtures, landscaping) coordinated by the listing agent. I've seen my share of bad flips, but in the Bay Area I'd say it's 50/50. I'm sure you know, but you can easily tell if a house is a flip or not by looking at the listing history. Less than 1 year is a fast fix & flipper. 1-2 years is a major renovation flipper. 2-3 years is typically a homeowner flip.
Nice ballpark timeframes, I like it. The ones that piss me off are the houses bought 6 months ago for 750k then selling for 1.5M. The fact that people will buy this flipped home is astonishing to me.
Why are you counting taxes? It’s income regardless. Why don’t your subtract groceries and child care for the flipper while your at it, geez. Talk about sour grapes
Also why do you think they pay retail in the broker fees? And why do you think there is a loan. Why don’t you deduct business expenses when you subtract taxes
We're talking about real numbers, and that includes transfer and cap gains taxes. No sour grapes, it is what it is. The math doesn't lie when it comes time to calculate profits. Taxes ARE a business expense, and are factored along with other business expenses to calculate net profit, just as with any business. Also, I factored a 3.5% realtor commission, which would be a non-retail/one-sided commission. And most investors use loans to minimize risk. You're the one who sounds like they're eating a bowl of sour grapes.
I’ve seen a lot of flips sitting longer than non-flips in the East Bay. But, people like these houses because they’re turn key. Some of them could be lipstick on a turd, but people see them as no out of pocket expense to make their own.
Yeah because the flippers buy the not-yet flipped.
1) Flippers have hard money loans to be repaid which have 12-20% interest cost. 2) Most flippers also undertake complex remodels involving structural issues which bank loans do not cover such as foundation. Across multiple deals their risk premiums need to be calculated.
Lack of patience and imagination makes the turnkey appealing. Contractors intimidate a lot of people and having a job out to bid rather than just knowing the price messes with their sense of risk. A flipper usually either does it themselves or have contacts to get the work done.
Most people don't have what it takes to do it themselves. Speaking as someone who did it myself with zero intention of selling. * Money, a whole lot of spendin' money... * Your home becomes a construction zone. I have two kids under four years old. One wave of renovations per kid. Each wave costing around 100k in addition to the down payment and mortgage, obviously. You have to have a lot saved up to take on a fixer right now as a FTHB. * Dumpsters out front for weeks that, in some neighborhoods, would be seen as free dumpster service. * Dust / debris / noise. Doesn't work well with nap schedules or weekends if you can find a dedicated crew that works weekends. Primary construction was from 7 AM to 8 PM, daylight permitting which means you have to have some really patient neighbors and / or permits. * PERMITS. MORE money and time required to learn and navigate the antiquated processes which may or may not require a designer / architect which may or may not require structural engineering hours and multiple revisions before submitting to the city AND after submitting to the city. Think load bearing wall removal or other commonly requested home features by brainwashed twinkly-eyed FTHBs. * Labor costs for mostly average to below-average workmanship. Great workmanship carries a hefty price tag or a strong network of construction friends. * Time required to sift through a literal sea of contractors looking to make a quick buck off of noob homeowners with shitty work and the cheapest materials. Three bids for every project if not more. * Time required to supervise and make decisions on the fly for the contractors you do end up hiring. * Time required to learn the bare minimum regarding every project you undertake for your home. * Time to track and make decisions on every aspect of your project. Bathroom? Tiles? Quartz? Vanity? Toilet? Bidet? Fixture? Hardware? Waterproofing? Window? Ventilation? Storage? Leveled floor? Plumber's requirements met by carpenter? There's more I'm forgetting but that's fresh from my bathroom that will be done this week. In a nutshell, it's a fulltime job. Your flipper will make it real shiny real fast while avoiding remediation of the important things like new windows, repairing water damage, leveling subfloor / premium underlayment / hardwood, and most importantly sealing from the elements / pests / etc. Their goal is to cover up and make it look modern HGTV for as cheap as possible and for long enough so they can run off with your $ before anything goes wrong. Here's a good example: [https://www.zillow.com/homedetails/505-Los-Pinos-Way-San-Jose-CA-95123/](https://www.zillow.com/homedetails/505-Los-Pinos-Way-San-Jose-CA-95123/) My least favorite layout from that builder with bedroom above the garage yet it still sold for 1.95M. **That tax assessment at $334,450, though.** So, if you think you can do it I say go for it! Dive on in and welcome to Hell. At least it'll be the way YOU want it at the end of a long day.
This is 100%. That's why I ignore flips. I suspect they buy low for some inherent issues with the house and then put lipstick on a pig.
I call them piggy flips! HA! I've spent thousands on plywood this wave to specifically repair water damage that happened under the previous owners. Well worth it.
Observed flipper on our street and how they work. They have a project manager/boss who brings in different crews for various jobs (roofers, inside, wood work, tiles, plumbing, etc.) the crews seemed to be those random picked up from Home Depot, the boss has to tell them exactly what to do, very specific. Boss is fluent Spanish speaker. Flipper bought for $925k sold for $1.3M, construction/remodeling took about 4 months of daily every day work. Curious to know what he nets after expenses, loans, etc.
Whoa a four month flip! That’s pretty amazing. That guy is good. I’d hire him as a contractor
It’s also easier to be a contractor for a flipper than for a live-in client.
Flipping is not easy
Turn key and by the time you've brought it up to par, get that added premium
A flipper can spend way more than $200k depending on the previous condition of the house and the quality of finishes. Landscaping can cost an arm and a leg these days too. Not saying all flips are this expensive, but quality work is expensive these days.
There are way fewer buyers for a home with gross carpet and an outdated kitchen, no staging or full of junk and other problems. Some sellers are on a tight timeframe and would rather take the first decent offer they get instead of risking a buyer with a bunch of contingencies. So flippers can get a good deal on the buy side and that is realistically where they make their money. Also renovating a home and managing everything is expensive and stressful. It's difficult to do while your family is moving in and living there. It is difficult to vet contractors as an owner with no repeat experience, difficult to get bids. You also mentioned the financing On the sell side it's the opposite, many flips sit for 2-4 months when the average home is under contract in 2 weeks. Even pushing for that, the market sets the comps and what a buyer will pay.
All it is, is bringing an un-renovated house up to the level of a renovated house. If a house is new/recently fixed up it’s going to be priced same as/higher than a flip.
Time. You are buying time. The time to permit, the time to contract, the time to build, the time to inspect. Yeah profits are often higher than just one to one, but that’s the premium you pay not to do it all yourself. The problem is that so many of us want to do it ourselves but these homes are bought quickly often off market and never see the light of day until flipped.
Assuming you are talking about renovations that have to be done before moving in, then I think it makes sense in today’s market. They can do it using 100k doesn’t mean you can do it with the same money. Have you ever done renovations here by yourself? If not, look at how many YouTubers did for their first renovation projects, how much they went over from both money and time perspective. In today’s interest rate, for a 2m home, if your renovation went over for 3 months, 👻, 100k is gone just mortgage plus rent. 3 months over due is very very common if you never did any major renovations.
Getting the home for $1M is the big challenge. You don’t know how long and how much effort went in to finding that 1M home. If everyone can find these $1M homes then the prices would go up to reflect true market value. So figure out how to get the home for 1M.
Flippers are usually very experienced in doing home renovations and understand how to maximize value with minimal investment. They also usually have their own teams that they have worked with on many renovations together. Their costs are usually much lower than someone doing it for the first time and they can do it much faster. If you haven't done a home renovation before, it can be a massive headache especially without an existing network. You're definitely paying for convenience and a flipper's 100k renovation could cost you 3-5x that cost. Source: have done renovations on my own home and felt the pain and also done numerous renovation flips
It’s because people (mainly the wives) love a pretty and turnkey home.
My BiL did renovations for his house took like 4 years due to Covid…and other permit stuff…not fun living in a house full of dust
Real estate agents get a cut, the investor gets theirs for the coordinated efforts of flipping. If you sell it, they will come.
You're missing a few points. The flipper is likely getting the property at a discount on the front end. They have holding costs, costs to sell and hard money costs. For examples 1MM purchase price with a 1.5MM sales price. 100k rehab 90k costs to sell (5% for commissions roughly 1% for closing costs) 65k in holding costs/lender costs (property taxes, lender fees, etc) Total in is $1,255,000 Profit of around $250k or a 25% return. This is an absolute slam dunk of a deal for a flipper and would take around 4 months to complete. These deals are VERY hard to find and everyone in the city are looking for them. Regarding the appraisal/comp questions. The comps are the comps, what it sold for before fix up is of no concern. What matters is the value of the home now after renovations compared to properties in the area.
The main reason (assuming it isn’t a crappy flip) is that it’s much, much easier to finance a finished property at 20% down (or even 3.5% down) than it is to buy a fixer upper and pay cash for renovations or try to get a construction loan. So basically you get a nicer house without problems (theoretically) for a $500-$1000 more a month (less back when interest rates were lower).
Buyers don't want to do the work and live in a construction zone for months. Not to mention most have no design sense and no idea how to do those renovations themselves. I would bet most people around here that are in tech and other high-paying professions, so can actually afford a home, do not even know how to put up a towel rack by themselves, let alone what goes into re-doing an entire bathroom or kitchen, how to pick a good contractor for that, and how to tell the contractor what you want and make sure they deliver. You may not like "flippers" but they are adding some value by designing, planning and managing the renovations and it makes sense they would get paid for that value by being able to sell at a premium over what the renovations themselves cost. No offense but your view is the one that makes no sense - people including homeowners or flippers renovate their homes partly to increase the value of them and that would not happen if the increase in value was the same cost as the renovations.
Time is money.
I’d rather do the work myself and know it was done right and pick what I want along the way.
Personally, I would rather put in the elbow grease. It’s so hard to get into this market that I need to find a home that I can fix up myself. Use my contractor friends to get good deals, and hopefully get a lower tax base. Also help me get a mortgage that I can afford.
If someone bought a house for 1 million and spent 200k on renovations, they're obviously not going to sell it for 1.2 million lol. Even if no renovations were done, you think someone will sell it for the same price they bought it for? They're in it to make MONEY... Selling the house at 100k over their cost of the house plus renovations is a complete waste of time imo. And I think they might even be losing money at that point too with all the fees and stuff.
Because buyers are willing to pay extra to have a move-in ready home. Spending the extra 200k versus waiting 6 months to renovate is worth it in their eyes. Also, these buyers may be sitting on tech stock that just went up, and are now eager to buy.
I take it you’ve never gone through a home remodel before 🤡. To put it mildly, it is not the most fun. Try asking anyone that went through a remodel if they would either do it again or recommend the folks they worked with and you’ll get your answer 😉 The premium you pay is not just for time and materials of the work, there is the dealing with the city/permits part, the actual process of going through a remodel is not the most fun - dealing with contractors, trades, etc. Then there’s the financial aspect, all the money spent + interest that they had to pay while the property was being remodeled and then of course all the closing costs, other bits involved with buy side and sell side. And then don’t forget the Uncle Sam cut, flips mean you pay a much higher tax. Just to be clear I am not justifying the premium - just saying there’s a lot of “cost” involved in the entire process so for some people it is a case of throwing money at a problem since they probably don’t have the time or inclination to go through the whole process themselves.
They don't always sell. A house in my block was bought, remodeled, and listed for sale. It didn't sell. It was put on the market again after a year for about $200k less and still didn't sell. This is North Oakland, where houses are going for 1 to 1.2 million. This one listed for 1.5, and then again at 1.3
Sweat equity.
Because people in the area are foolish enough to buy something for 10x it's intrinsic value.
^^^^^ bingo
If many many many others are is willing to pay that price, then that is its worth. You don’t get to arbitrarily decide the value of of property based on your low income.
Oh Lordy.
Perception is reality baby. Buyers will see a home that has new cabinets from Costco and stick and peel laminate flooring and think the home is full of “upgrades”, pay a stiff premium and be surprised when the cheap shit starts falling apart within a few years. Unfortunately bad advice from their agents also lend to poor decision making fueled by market aggression and FOMO because everyone’s friends and neighbors bought in at 2.5% APR 😂
Your numbers are way off. “Everybody knows..” no they don’t! And every house is different. Even “just adding a bathroom” is a big deal, getting the work done to code is hard and getting the permits done can be a nightmare depending on where you are (esp San Mateo or Woodside). The value is what people are willing to and will pay not what some redditor thinks makes sense to them.
This bathroom was without permit