4 ms·

> I've come to believe flipping is a major problem, at least in my locale. A $300K house gets $50K of "improvements", then the investors needs $100K profit afte

by jjav 5y ago

> I've come to believe flipping is a major problem, at least in my locale. A $300K house gets $50K of "improvements", then the investors needs $100K profit after commissions are covered and so we're in the $500K range for the next buyer and very little value was added. That's not quite how it works though. How much the investor spent in changes is not relevant. What matters is how much the next buyer values those changes. If the investor bought the place for 300K and spent 50K on giant pink flamingo statues all over the yard, the next buyer will likely offer less than 300K. Only if they spent 50K on improvements that the next buyer feels are worth it an increase the value, then they'll offer more. But in that case, value actually was added.

onlyrealcuzzo 5y ago
> What matters is how much the next buyer values those changes. Flipping doesn't really exist when appreciation is low. Remember how no one was flipping houses in 2010? And then in 2012, suddenly everyone in their mom started flipping houses again? It only makes sense when asset appreciation is high. You'll find that most of the "value added" is simply them holding the house for 6 months and capturing appreciation (on leverage).
- conductr 5y ago
  Why then is holding cost such a major concern of every flipper? Each market is different, maybe you've seen that level of unadultered appreciation, but I never have and I live in pretty high growth place my entire life. In my opinion, the "value added" is more correlated with what new construction on the similar land would cost. As lumber prices went up last year, existing homes went up too because the cost of building became higher. Essentially, a flipper wants you to feel like you have a new home at a discount and you'll pay the optimal amount for it.
conductr 5y ago
> What matters is how much the next buyer values those changes. The next buyer usually feels like the home is over priced. Because it is. They know it is, but they lack optionality because a majority of the active MLS listings are flipped homes. Think of it as they are forcing the next buyer to pay as much as they can possibly afford. Sure, low interest helps the "afford more" but it doesn't mean they are comfortable or happy spending that amount. It doesn't mean they necessarily value it either. They may have been happy with the original condition at $300K but they never saw that option. It was an off market transaction. > Only if they spent 50K on improvements that the next buyer feels are worth it an increase the value, then they'll offer more. But in that case, value actually was added. Sure they feel $50K was added. But not another $100K of profit for the flipper who only held the property for 8 weeks before re-listing it. The $100K, 20% of the new "value", is completely intangible and not real. This is supposed to be real estate after all.

by jjav 5y ago

onlyrealcuzzo 5y ago

> What matters is how much the next buyer values those changes. Flipping doesn't really exist when appreciation is low. Remember how no one was flipping houses in 2010? And then in 2012, suddenly everyone in their mom started flipping houses again? It only makes sense when asset appreciation is high. You'll find that most of the "value added" is simply them holding the house for 6 months and capturing appreciation (on leverage).

conductr 5y ago
Why then is holding cost such a major concern of every flipper? Each market is different, maybe you've seen that level of unadultered appreciation, but I never have and I live in pretty high growth place my entire life. In my opinion, the "value added" is more correlated with what new construction on the similar land would cost. As lumber prices went up last year, existing homes went up too because the cost of building became higher. Essentially, a flipper wants you to feel like you have a new home at a discount and you'll pay the optimal amount for it.

conductr 5y ago

> What matters is how much the next buyer values those changes. The next buyer usually feels like the home is over priced. Because it is. They know it is, but they lack optionality because a majority of the active MLS listings are flipped homes. Think of it as they are forcing the next buyer to pay as much as they can possibly afford. Sure, low interest helps the "afford more" but it doesn't mean they are comfortable or happy spending that amount. It doesn't mean they necessarily value it either. They may have been happy with the original condition at $300K but they never saw that option. It was an off market transaction. > Only if they spent 50K on improvements that the next buyer feels are worth it an increase the value, then they'll offer more. But in that case, value actually was added. Sure they feel $50K was added. But not another $100K of profit for the flipper who only held the property for 8 weeks before re-listing it. The $100K, 20% of the new "value", is completely intangible and not real. This is supposed to be real estate after all.