Flipping America: House Flipping is Dead!

House Flipping is Dead!

Jan 23, 2019

FAR 222

“House Flipping is Dead”

Expected Air Date: 1/21/19

Opening

“House Flipping is Dead! Long live Flipping Houses!”

Have you ever wondered about that phrase, “The King is dead - long live the king!”? The first time I heard it I must have been in middle school (we called it Junior High School back then) watching a movie. Aside from the apparent contradiction,which is actually a literary device known as epanalepsis, I figured it probably had something to do with declaring the next guy king. It turns out I was right. It started with the French in the 1400’s and spread throughout Europe as a way to provide stability in the kingdoms and avoid civil war after the death of a monarch. It’s like saying “Charles VI is dead, long live Charles VII.” But that doesn’t roll off the tongue in the same way does it?

So today I’m proclaiming that House Flipping is Dead. And at the same time I’m saying “Long Live Flipping Houses.” I’m not the official real estate coroner so this is just my opinion, but we are at what could be a crisis-point in residential real estate investing. The real estate markets are cooling off. Sales all along the west coast experienced double digit drops in the last half of last year when compared to the prior year. Averages days on market is on the rise all across the country. Interest rates more than doubled last year. The tax cuts of 2017 took their toll on the sales of houses priced at $750,000 and up. The slow down is dramatic. In the midst of all of this the major real estate gurus are raking in tens of millions of dollars while pushing out thousands of freshly “trained” real estate investors into the marketplace. (You can’t see this, but I used air quotes around the word “trained”.) These investors are competing for a product pool that is drying up, driving up prices, reducing and sometimes eliminating profits. They have just spent 30-50,000 for their training and believe they have to buy something - anything to justify that expense and get them started into their dream career. Wholesalers see what is happening and are more than willing to prey on their naivete, asking for and receiving enormous fees for flipping paper. All of this frenzied activity is focused on a market that is receding, making opportunities for genuine profit slim indeed. Because of tightened lending requirements beginning back in 2010, foreclosure rates today are at an all-time low. While this seems like good news, it means there are fewer distress sales for the house flippers. So congratulations to the home-owners and to the vultures waiting for failures we say “see ya pal - better luck next time.” Higher prices, fewer opportunities, longer days on market, bigger rehabs in older houses, permitting difficulties with municipalities, inexperienced and unqualified individuals gumming up the works for the true professionals in the field, and hedge funds that continue to pay too much for any property that fits their buying criteria combine to create a big mess. In the next few months, many of these new investors will run out of time and money, give up, close up shop, and slink away to lick their wounds. Some will turn to social media and blame their gurus. A crisis is coming and it is unavoidable. Those who don’t know what they are doing will be out -- no matter what they spent on their so-called training. Wholesalers who know nothing about what they are doing will be gone. The naive and uniformed will be gone. What will remain are a few knowledgeable people who didn’t need the gurus in the first place and a bunch of con men, waiting for the next crop of easy marks. This is why I have today proclaimed that “House Flipping is Dead.”

Long Live Flipping Houses!

If you’re thinking that previous section doesn’t sound like me, you are probably correct. All I have done is put all of the “sky is falling” messages into one place for your convenience. And I point out -- you can find evidence to support whatever viewpoint you choose ahead of time. If you are willing to engage in selective interpretation you can make almost any illusion seem like reality. The fact is, everything I just told you is a fact. The only thing I don’t believe is that house flipping is dead. The house flipping of the past five years probably IS dead - and it needs to go ahead and pass on. But that House Flipping method was born only in about 2012. The previous House Flipping died around that time, but it had only been born in 2008. The House Flipping I knew died in 2007.

So in my short 17 years in this business I’ve seen House Flipping, as we knew it then, die and be re-born at least twice. This will be the third time. But don’t worry - it will be back.

We believe writing was invented about 6000 years ago in ancient Babylonia. Two weeks later someone wrote down the details of a real estate transaction. A month after that, the first property flip in history occurred. OK, I’m a little fuzzy on the precise dates of those transactions of course, but my point is, real estate investing has been around for as long as anyone has been keeping written records, and probably thousands of years before. Much of the history of humanity has been centered around the acquisition of real estate. It’s nothing new and it will never go away.

I’ve heard a Native American idea that we do not own the earth any more than a flea owns the dog it is living on. I love the perspective of this and appreciate the truth of it. At best we are stewards of our little slice of ground. But if we are wise, we can turn that little slice that we momentarily control into something that can provide for our families, create opportunity for the employment of others, and perhaps leave a legacy after we are gone. So we may not “own” the ground in reality or in metaphysical reality, but in the eyes of the guys with the big guns (our government), we have a right to prosper from the land we hold. So let’s be about holding what we can.

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Announcements:

Lunch with me every Wednesday. Baraonda
The FAN is rolling out very soon. First quarter for sure, possibly within the next six weeks. It’s an online property marketplace for investors. Free to use with a small technology fee when you buy a property. Wholesalers no longer need to build a buyers list. Just log on and a massive buyers’ list is waiting for your property. Rehabbers can look at the deals, the pictures, the information on the property, and make a decision. You can also reserve your zip code and get 48 hours of exclusive access to all new listings in that zip code. Homeowners - you can list your property in the FAN for free and get an all cash offer very quickly.
Jan 23, Privy Webinar
Jan 31, BnB Formula Webinar
March 16-17, FlipStarter, www.flipstarterevent.com.
Flipping America App is in the app store. You can listen to the show, read the show notes, and the entire catalog of shows is now available to you. It’s a free download and there are no upsells or in-app purchases. Free to download, free to listen. Go ahead and give it a try and drop me a line and let me know what you think.
Want a quick analytical tool to tell you how strong a potential fix and flip deal is? Download the Property Grade app. You answer 10 simple questions about the property and the app instantly tells you what you can expect to make, your return on investment, your return on cash, and then the program gives the project a letter grade using the proprietary Flipping America Investment Property Grade algorithm.

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Motivational Thoughts for the day

“Everything You’ve always wanted is on the other side of fear.”

George Addai