Property Flipping: The Dirty Truth

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We all know the routine. A couple appears on television, groomed and glistening in well put together attire.  The woman in the group is glamed up.  The man is casual with a smugness about him.  They smile and cock their heads side to side.  They are Mr. and Mrs. Blah Blah, and they flip homes.

The camera pans out to the run down, long forgotten property they just “snagged at a great deal” from an auction we never see.  The property is a mess, a straight up movie scene for a murder house movie.  The woman smiles confidently, she knows her designs are the best in the business and she can make this place shine as bright as her newly done nails.  The man; however, suddenly has reservations but has plans for a strict budget number he knows he’ll have to helicopter over.

Fast forward about 30 minutes into this show and we’re gonna see the guy flip out no more than 10 times, the woman go ‘over budget yet again’ and then at the end of the show, the house is open for viewings and people love it as it all comes together.  A job well done.  The house sells with a 100k profit within two weeks of being on the market.

“Onto the next” they say as the credits roll out.

*****

Let me tell you a secret.  A filthy, dirty, little secret. 

None of what you see is true. Not even close. It’s a lie. 

When I tell people I flip homes, the first thing out of their mouths is always “OH I love those shows, I’ve actually thought about doing it, I love designing-“

…Gonna stop you right there.

Whatever thoughts you are having about flipping, let them go…

Don’t get me wrong. I don’t want to discourage people from trying something.  I really don’t, but what you see on those shows is not real life.  It’s not how the process really is, and in complete transparency the ‘profit’ numbers people drool over is not actually the real numbers.  

The problem with these shows and their clouded distortion of the process is that it lures people in, not just to watch it (which is the whole point of the show) but to actually TRY IT THEMSELVES. 

You don’t get a factual explanation of how it actually all works. There are so many things happening in the background that doesn’t get showed, so many mistakes that can cost you not just hundreds of dollars, but tens of thousands of dollars.  I’m just going to go out on a limb here but I feel like the majority of people don’t just have 50K to gamble away on a whim.  

If you do, great! Go right on ahead.

Now, saying that, there is actually good money, really good money, that can be made flipping houses. IF you are WILLING to work for it.  It is still a job and the only way to walk away with your sanity intact and money in your wallet is to work hard and work long.

THE TRUTH ABOUT THOSE PROFITS

At the end of the show, you get to be jealous over the money they just took home.  They are waving six figure profits in your face and all they had to do was walk in, yell at their workers and pick a shiny piece of granite.  Easy right?

Wrong.  So wrong.  So very wrong.

What the show fails to show you is the holding cost of that house for starters. Most of these homes, if not all on television and real life, are purchased using what’s called ‘HARD MONEY.’  That’s basically a really short term loan with a wicked high interest rate and ‘points’ attached.  So on top of that holding cost (the mortgage, heating bill in the northern states, basic utilities, etc) you also have to pay X-amount interest each month for that  loan.  Guess where that comes out of, your profit and budget.

Also, the longer the house sits, the more money is chiseled away from that profit and budget.

PERMITS! Permits for everyone!

A permit can seriously vary from a few hundred to a few thousands dollars, and you need them for EVERYTHING.  Don’t mess around with these, my friends, get them pulled, get them checked.  An inspector will show up unannounced (has happened to us) and they will bring down the hammer of justice on you. 

That is one cost that never is factored in. Depending on the area, the total reno cost, etc, you could be looking up to 3k in permits for a mid priced property. Not to mention, TIME. Not all permits are handed to you in a timely manner, so now your holding cost is going up.

Permits are so important for many reasons, and each townships has different rules.  They make sure the property is being brought up to code so that when it sells, the place is safe.  Wouldn’t you want to live in a house that was actually to code?

Now let’s talk about plumbing, electricians, painters, carpenters, contractors, ffeeeeesss.

On the shows, I can not tell you how many times I have scratched my head trying to figure out where the hell they got that electrician to completely rewire a 3000sqft home for only 5k. That is a 15k+ job anywhere else in the country of the U.S.A.  I’ve heard of people spending up close to 20K. That’s just rewiring folks. Plumbing is another things…

Want a high paying job with flexible hours? Become a plumber. No joke there.

Electrial work for any property under 10 years old (you’d be suprised how many NEW homes have the wrong wiring) and more often than not outlets moved and appliances added.  All of this seems to be ridiculious low in the shows. Not at all realistic or actual pricing.

There seems to be a lack of additional labor costs as well!  If a tradesman brings an extra hand, you’re paying for it! I’ve heard of horror stories from other flippers of people just straight up walking out on the job.  This means now you have to contact the city/town hall, rework the permits, find a replace, etc.  All of this costs time and that time comes out of your profit.

MATERIALS!

Another thing that just baffles me on these shows….They spend pennies on materials, or they don’t even SHOW the cost of everything. Those studs cost money, that wiring cost money, the insulation, the nails and screws, the paint and primer, etc. There are a million and one little things that you need for a house that never get mentioned on the shows, and those things ring up FAST.

The cabinets, tile, countertop and fixtures alone can run you anywhere from 10k to 30k depending on what you are looking to install, and that’s wholesale pricing my friends. Does not even include installations.

Now lets not forget real-estate fees such as water and sewage, realtor fees to list and sell, and taxes.

Let’s be real, most people have money aside who are doing these homes to budget. Realistically most people budget around 50k-80k.  So on top of whatever it cost to purchase the home, auction fees, etc; they will have money aside to fix it up. That money allows you to actually make a profit.

So you got your profit…Now just magically erase 25-40% for IRS taxes. Government wants their cake, hands you a slice and walks away.  Tough luck kid.

Overall, assuming you didn’t lose money or just break even, it’s still not bad.  Not what you are seeing on television though, and honestly you only make good profit if you do some of that work yourself.

The problem with those shows, aside from everything I just ranted about, is that it gives people coming into the field a false sense of what to expect not just financially, but emotionally.  It’s a lot of stress, a huge financial burden to try and juggle and it’s not always profitable. I personally know people who have gone into 400k+ debt trying to flip houses, it worked out for him after half a decade, but for most it WON’T.

Don’t get a false sense of reality with these shows, don’t get lured in by bullshit radio adds either. Do your homework. Talk with people who have actually done the work, shadow them if you can. Television is there to entertain, not to necessarily educate.  If this endeavor was so easy, everyone would be doing it.  Just remember that.

If you still want to take on the flipping business, then by god I wish you the best and happy sales!

 

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