- Miller Samuel Real Estate Appraisers & Consultants - https://www.millersamuel.com -

Mindset Change: Flipping Out, Flopping Around

The idea of flipping your property for a quick profit was an exciting and lucrative-sounding idea to many during the real estate boom. In fact it was one of the driving forces of the real estate economy for the past 5 years, until recently. Services like CondoFlip [1] reflected opportunity in the inefficiency of a fast moving real estate market and the urgency for many to get in to it to get rich quick. However, it seems to me that whenever some investment gimmick is mainstreamed, many get hurt. But hey, all those book writers and seminar givers made a bundle.

Now the term “flip” is more like the day-old pizza you left out all night after watching a World Series games with friends the night before, rather than the warm sizzling version that was delivered.

Here’s a story about a 24-year old real estate investor that was covered by USAToday [2] and the San Francisco Chronicle [3]. He is described as the poster child for all that can go wrong. [Find out who that guy’s public relations rep is, he got some great coverage.]

He now has $140,000 in credit card debt and 5 of his 8 homes in foreclosure. From his candor in the interviews, it also looks like he may have defrauded lenders he dealt with in order to get financing. The thing is, that he like others, saw this a business decision, not unlike the way some lenders pressured appraisers to make the number (sorry, here I go again).

He also runs a blog (with advertising) called IamFacing Foreclosure.com [4] with the subtitle “Learning to Sell my Houses Fast, Avoid Foreclosure, Get Out of Debt, and what NOT to do in Real Estate.” and gets a large amount of commenting, much of it not very sympathetic.

Flipping real estate in many markets took on the characteristics of a ponzi scheme. At some point, there is someone left holding the bag.

The National Association of Realtors says that in 2005, 28% of all properties were purchased by investors and I suspect a large number of those were property flippers. I’ll bet the total number of investor purchasers drops substantially by the end of 2006.

Why do so many investors insist on going too far? Is there something in our culture that wants an easy buck, despite the warning signs? Sure many profited but I’ll bet that many kept going after it was too late. Think of all the listings in local markets known for flipping right now. I’ll bet many of those investors had made a profit on prior deals and went one or two deals too far and now regret it. Easy access to cash through creative financing techniques like liar loans, option-arms and others made the decision for them.

My grandfather went to the race track weekly for years and only allowed himself to bring a twenty dollar bill to bet so he would never get into trouble. Of course, he never made it big. “You gotta think big to make it big.”

Yeah, right.