The flipper’s paradise has returned and is in full effect around the Twin Cities metro area. It appears that it is 2002-2006 all over again when it comes to “turn and burn” real estate for property flippers. Not only are the lower-end properties hard to grab, most buyers area finding themselves competing with wannabe seasoned real estate investors on cash deals looking for quick profits.
Quick basics of a flip is to buy low and sell high to maximize profit without putting in a lot of capital in out of pocket. Let’s all admit that all of us have at least glanced at one of the episodes on television about people making six figures in one deal.
A lot of distressed properties that are rehabbed don’t actually make the final grade in what a buyer is looking for. Most seem fake.
Most Flips Miss
All flips follow the same flow. Cut corners on the less noticeable (roof repairs, trim work, etc) and dump money into the eye catching features (kitchen appliance, granites, et al). Almost all flipper’s hate spending money on practical items.
Here’s a quick list of some characteristics to watch out for:
- Kitchen Appliances: Most flippers have connections with local vendors offering ’scratch and dent’ appliances, watch out for noticeable damage. Even if
- Vanilla in colors. All those training videos tell real estate investors to use neutral colors to appeal to the broader audience. The color of choice seems to always be light tan.
- Consistency throughout the property is a problem. Mix-matching finishes like flooring, carpet, tile, cabinets (kitchen/bath). I think the reason is they ran out products to choose from on the discontinued rack. Cutting corners once again.
- Cheap windows, these are used because either they where retro fit in the current opening or because someone broke in. Check how they slide, some might have been installed wrong and therefore brute strength is needed to open. Also, faulty installation can cause a mess with water intrusion.
- The carpet is cheap. Sure it is brand new, but the quality is at the bottom of the scale. They use a upgraded pad to make it feel better than what it usually is. End result is the carpet wears a lot quicker.
- Travertine and Brazilian cherry floors don’t solve everything.
- Ever walked into a rehabbed house with staging? It doesn’t happen that often, but this usually means that they have done this thing before. Why? The real estate investor knows that a well staged house usually sells faster and draws eyes away from the real problems. Remember first time flippers are really trying to cut corners and typically don’t want to pay for home staging.
Fundamentals Need To Be Addressed
There is no joy in updating a roof, siding or simply upgrading the furnace along with the HVAC systems. This everybody knows, but fixes like these are often over missed and are small aesthetics for buyer’s.
Be on the lookout for the small things: caulking around bathroom fixtures, repaired cabinetry, trim (mitered corners, chips in the wood, dated), stain carpet cleaned but not replaced and other eye sores.
Moving walls or adding spaces can be much more functional as an end result. A lot of homes are older and not not kept up with today’s trends.
I’m no professional flipper, but I would like to think that I know what buyer’s want. Perhaps most flippers lose focus and only worry about the potential cash made from the property. A little time spent on the smaller things might create a quicker sale.
Be Cautious
Ask for disclosures. Property flippers don’t want to give these out. They will probably only issue a limited warranty for title meaning that they *only* know what they know from the time the property was first purchased.
True story and not uncommon, I was able to dig into one property for a client and found out there was mold prior to when the property was bought by the investor. It turns out they admitted to it being a small amount, but only to find out it was part of major cover-up. You see, all they have to say is there was mold, it has been taken care. The question is, how much mold damage?
Before pictures would be nice. If they just bought the property, odds are the buyer’s agent will have access to the prior listing photos giving you an idea of what the property looked like when the investor purchased it.
Just make sure to explore all due diligence, get an inspection.
Get Over The Shiny Objects
Seeing past the bright shiny objects is the key to spotting if flip has flopped. Make sure the property fits what you, the buyer is looking for. Just because the property has all the latest and greatest fixtures doesn’t mean that it is the best.
Find something that has value.
It’s hard to find a flip done right, most are simply half-assed.
