House Flipping Still Surprisingly Popular
An article in the Washington Post suggests that flipping is making a comeback. Why?
The Washington Post suggests that house flipping is making a comeback:
Not long ago, John Irvin was selling women’s shoes in the Nordstrom at the Pentagon City mall, pulling down about $20 an hour.
“If I do one house every quarter, I’m making $125,000 a year — at 25 years old,” Irwin said. “All my other friends, they have a 9-to-5 job. They make probably half of what I’m making right now. It’s kind of like hitting the lottery.”
Flipping earned a bad reputation during the housing boom thanks to speculators who bought and sold millions of homes in search of easy profits. But the practice is gaining popularity again as the nation’s real estate market shows signs of life. The number of flips rose 25 percent during the first half of 2012 from the same period a year earlier, according to research firm RealtyTrac, and the gross profit on each property averaged $29,342.
This has been a noticeable trend in DC for years now; every other house on the market is a flip. In part, that's because DC hasn't sustained the kind of damage to its housing market that everyone else did. There are almost no short sales, and the ones that are seem to come onto the market already under contract; one suspects that the owners are cutting some sort of deal with the buyers, and the banks don't care enough to pursue it.
Any house that is unrenovated and relatively well-priced gets snapped up by an all-cash offer and closes in a few weeks. Then eight weeks later it comes back onto the market having had all the period detail stripped off and the walls torn down, a Home Depot or Ikea kitchen with a glass tile backsplash installed, and a couple of fresh bathrooms put in--and, of course, a few hundred thousand dollars added to the price.
But the Post's article suggests that it's happening elsewhere--Arizona, for example, which has been hard hit by the housing bust. House flipping, of course, works best when price appreciation gives you a profit cushion. I don't think we're seeing that kind of movement in most places yet.
So what's going on? I have one theory, bolstered by conversations with local real estate agents: the difficulty of obtaining home equity loans has dramatically increased the premium on renovated properties, even boring, cookie-cutter renovations using cheap materials. After living in a flip house as a rental, I would never buy one; the place was full of lovely, poorly executed finishes like french doors (that let puddles into the kitchen), two jacuzzis (and a hot-water heater not big enough to fill one of them), a wine fridge (and no counter space), a stainless steel dishwasher (that regularly shed key items like its seal). But given our attitude towards debt, that means waiting for the kitchen, bathrooms, finished basement and landscaping that we'd like, until we can save up the cash to pay for it. Since the basement needs to be dug out, and done at the same time as the kitchen, it's going to be a long wait.
Even after everything, we are not a patient society. People want a shiny renovated house now, not ten years from now when they've had the money and the time to do repairs. And so the flippers endure.