Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

30 responses to “The Fix-n-Flip: Still Alive & Well”

  1. Grant

    I’ve seen a few in Phinney the last couple of months–one about a block away from us that was in foreclosure and sold for something like $250K 6 months ago and then was listed for $550K about 2 months ago and sold in 4 days at $560K. Two other examples a few blocks away–both were on the market longer, but similar sales prices and return.

    Rate this comment: Thumb up 0

  2. NewHomeOwnerInFremont

    In Seattle proper, this one was a flip: http://www.redfin.com/WA/Seattle/4228-5th-Ave-NW-98107/home/302014 . I’d say they made a nice return. I don’t know what the expenses were but the flippers made a cool $221K (minus costs).

    Here is another: http://www.redfin.com/WA/Seattle/2215-E-Olive-St-98122/home/144924 . It’s been pending forever. So I wonder if this one will close.

    Rate this comment: Thumb up 0

  3. Updog

    If by “flipping”, you mean “cleaning house, applying a new coat of paint, and weeding the lawn”, this place went pending at roughly ~$160k increase, from $385k to $549k :

    http://www.redfin.com/WA/Seattle/2606-E-Olive-St-98122/home/146257

    Probably not a great example since the foreclosure price was low to begin with and it wasn’t sold as a conventional sale.

    Rate this comment: Thumb up 0

  4. Kary L. Krismer

    I’m not sure whether they are becoming more prevalent, but it’s definitely a more professional group of people than those doing it 4-5 years ago.

    BTW, Updog, I didn’t check on the one you mentioned, but you can’t always go by the foreclosure sales price. There are still a few second mortgages that foreclose, so what looks like a killing might not be. I ran into one of those a few months ago.

    To find out you need to go to the King County Recorder’s website and research the property to determine which deed of trust foreclosed.

    Rate this comment: Thumb up 0

  5. Aaron

    It’s been a while since I’ve seen a fix-n-flip success story.

    Rate this comment: Thumb up 0

  6. Grant

    By Kary L. Krismer @ 4:

    I’m not sure whether they are becoming more prevalent, but it’s definitely a more professional group of people than those doing it 4-5 years ago.

    Yeah, the one a block away was done by an investment company, and believe the others were a well…

    Rate this comment: Thumb up 0

  7. Scotsman

    Here’s one we looked at back in February but the wife couldn’t see the potential- and I’ve got to admit it was pretty rough. Looks good now, but costs were probably substantial- completely redone inside and out and a lot of clearing, trash removal, etc. on the property:

    http://www.redfin.com/WA/FALL-CITY/31633-SE-40TH-ST-98024/home/464879

    Rate this comment: Thumb up 0

  8. softwarengineer

    Making Money, Losing Money or Breaking Even on Home Flipping in Seattle

    Its nice to see prices can fluctuate with new counter tops and stainless steel appliances with oak flooring in the kitchen….but what the hades is the total remodeling cost the old seller incurred to flip for a sale????

    Its a complete mystery, IMO, even after you get a contractor’s estimate….you tear something apart before the estimate gets more stable….’cause you never know what lurks behind the old dry wall and floor framework until you get a “looksie”. If you ever saw the movie the “Money Pit”, and remodeled a old home yourself, you’ll understand the ambiguity of estimates before teardown might as well have been made with a Ouja Board.

    Article:

    “….Kitchen remodeling cost estimate will also serve as the basis for formulating the plan. When you start working out the remodeling cost for kitchen, you’ll realize that it does involve a lot of expenditure, because there are various types of hidden expenses that shoot up the total price of remodeling project. It is very important for you to have a feasible outline for the project, including timelines and costs. Right from getting the basic framework of the revamped kitchen, to its electric supply to its water fittings, you need to consider a lot of basic aspects of remodeling a kitchen. …”

    http://homedecor.iloveindia.com/room-decor/kitchen-decor/kitchen-remodeling/kitchen-remodeling-cost.html

    I use the kitchen as a good example, since remodeling it has the best chance of even a substantial “partial” investment return. I did a complete kitchen remodel and became my own contractor when I found out just the kitchen alone was going to cost me about $100K CASH in 1990 [probably double that figure now]. It was just a small 50s era galley kitchen in Bellevue and I replaced the cabinets, sink, countertops and flooring [kept the original appliances, the contractor estimate was still $100K]. I did it myself with the help of a lead carpenter and his friend [plumber with some electrical know-how] for about $10-15K [about $20-30K in today's dollars]. The bottom line, I made money eventually flipping after a divorce, but the sweat labor almost killed me off and factoring that in, I broke even. I’d have lost most of my money hiring a licensed contractor.

    Is fixing and flipping profitable??? Based on my experience, probably not….I’m sure there’s fringe exceptions, but don’t believe even those verbally until you’ve seen the actual purchase orders for labor and material in writing.

    Are banks fixing and flipping today on the cheap??? Again, don’t believe any verbal allegations, until you see the purchase orders in writing for that particular unit’s work, paid for by the bank. Remember, banks will possibly lose money on a unit IMO, just to keep the neighborhood’s price structutre from collapsing, IMO. Especially high priced “Pink Pony” neighborhoods.

    Rate this comment: Thumb up 0

  9. softwarengineer

    RE: robotslave @ 9

    Call Me a Skeptic

    Even cookie cutter contractors “on the cheap” are only as cheap as their puchase orders for labor and material in writing document.

    I have to see to believe…..my past experience gives me credibility to expect more than just a verbal descrption.

    In your credit though, it seems some of the contractors aren’t getting jobs lately, so to compete better have dropped contractor fees….again, its verbal by SWE and what impact is this verbal allegation having on remodeling estimates’ bottom line????

    Lord only knows, as even if you decrease one cost area on an estimate, doesn’t mean you don’t simultaneously beef up the other contract cost items.

    Rate this comment: Thumb up 0

  10. No Name Guy

    By softwarengineer @ 10:

    RE: robotslave @ 9

    Even cookie cutter contractors “on the cheap” are only as cheap as their puchase orders for labor and material in writing document.

    In your credit though, it seems some of the contractors aren’t getting jobs lately, so to compete better have dropped contractor fees….again, its verbal by SWE and what impact is this verbal allegation having on remodeling estimates’ bottom line????

    My neighbor works for a certain home builder here that’s still doing alright. He’s one of their project managers, so knows a bit about what stuff costs and how hard up the workmen are for jobs.

    As a result, he’s gotten me some sweet deals with guys looking for side work these last couple years. A couple examples:

    Had my roof done summer of 2010 for ~1/2 the total cost of what the neighbor across the street paid in 2006 for a very similar sized job (within a square).

    Had hardwood done – installation was way less expensive that it would have been a few years ago.

    Bottom line – if you have a steady supply of work available (as the investment flippers might have), you can beat down the price and demand quality work. If they screw up the work, there’s someone else standing in line begging for the job. It’s just the facts of the current economy.

    Can’t speak to the price of materials….

    One other thing – as noted, if the investment flippers are doing these “cookie cutter” – well that just means they’ve figured out the process and already come down the learning curve. They’ll squeeze out waste and inefficiency based on their prior experience. It certainly is one way to restore a formerly rotting piece of housing stock to a decent (probably) well kept structure.

    Rate this comment: Thumb up 0

  11. Scotsman

    I don’t have any experience rehabbing homes, but I have done a lot of cars and boats. The saying for those it that you make or lose your money when you buy. I’m sure the same is true for homes. Most of these were bought very cheaply, had some unique or desirable features and were probably surrounded by much more expensive homes. Unlike the good old days not every neglected or run down home can be flipped for a profit. but there are a few out there, in a seemingly narrow price range.

    Rate this comment: Thumb up 0

  12. robotslave

    RE: softwarengineer @ 10

    Another thing to keep in mind here is that a lot of the businesses doing residential property rehab on spec are either well-run contracting firms that have picked up a bit of flipping on the side, or the reverse– rehab businesses that have grown big enough to establish their own contracting unit. With this setup, you can keep your skilled workers occupied, and use them for a higher percentage of your labor, as opposed to hiring out piecework. And of course, you also vaporize the contracting margin; you’re just taking it out of one pocket and putting it in the other.

    The people doing this at scale don’t play by the same rules you have to follow as a homeowner remodeling a kitchen. You’re absolutely right to be skeptical based on your own experience, but the rules are a little different in the volume game.

    These larger players aren’t buying homes at random, either; they go by a pretty specific checklist, and if they’re planning to stay in the pro game, they’ve got a dozen candidates for every project they actually pull the trigger on. They’ve got their own engineer, and they’re definitely not buying without a “looksie”.

    They do still run into problems, of course, and sometimes they’ll try to just cover them up and pass them on to the buyer. If you’re looking at a pro flip, don’t let your inspector get lazy. If the floors are even slightly uneven, make darn sure your inspector crawls under the house with a flashlight.

    I kind of wonder how many granite countertops are going to be leaning at strange angles 30 years hence; not every kitchen floor is built to keep that much extra weight level over time.

    Rate this comment: Thumb up 0

  13. SeattleMatt

    Here’s a couple from my favorites that suprised me
    $247K to $1.1M, with a 5000SQ foot lot!
    http://www.redfin.com/WA/Seattle/4316-36th-Ave-NE-98105/home/122792
    http://www.redfin.com/WA/Seattle/2017-N-80th-St-98103/home/307332

    Rate this comment: Thumb up 0

  14. Bingo

    Here’s an interesting one:

    http://www.redfin.com/homes-for-sale#lat=47.48469191195604&long=-121.78496758041751&market=seattle&max_price=1000000&sf=1,2,3,4&sold_within_days=180&uipt=1&v=6&zoomLevel=15

    This was a short sale. Purchased on 7/14/11 and immediately relisted. Been on the market 59 days. The markup is about 9%, so I’m assuming the buyer is a broker/agent. I’m guessing they are looking to earn the commission?

    Rate this comment: Thumb up 0

  15. Bingo

    RE: Bingo @ 16

    Oops! Sorry…bad link. Here’s a better one.

    http://www.redfin.com/WA/North-Bend/565-SE-7th-St-98045/home/485679

    Rate this comment: Thumb up 0

  16. softwarengineer

    RE: robotslave @ 13

    Yeah, Slapping ‘em Together Possibly and/or Covering Up Major Defects

    Intensify the building inspection.

    Good points, I agree.

    Would i buy a “possible fixed money pit” that’s in the $400K realm? Not likely, unless I had a $400K bag of cash for it I didn’t miss….debt can go under-water fast in this housing market, so buying it the mortgage noose method is way to risky for SWE…..I’m sure the banks agree with me too.

    Rate this comment: Thumb up 0

  17. robotslave

    RE: softwarengineer @ 18
    Yeah, I definitely wouldn’t pay $400k for one of these jobs, but <$299 would look pretty intriguing if I were a first-time buyer, or just trying to minimize my potential (*cough* likely) losses, no?

    Like I said, these players have gone downmarket; it could well be that's where the demand is, in addition to it just making more sense for them from the capital management side of things.

    Rate this comment: Thumb up 0

  18. deejayoh

    By Scotsman @ 12:

    I don’t have any experience rehabbing homes, but I have done a lot of cars and boats. The saying for those it that you make or lose your money when you buy. I’m sure the same is true for homes. Most of these were bought very cheaply, had some unique or desirable features and were probably surrounded by much more expensive homes. Unlike the good old days not every neglected or run down home can be flipped for a profit. but there are a few out there, in a seemingly narrow price range.

    I agree the money is made on the front end. But there are plenty of distressed places to be had – especially if buying from the bank. I mean, that second place was bought from the bank for $57/sqft. Thats ridiculous

    And I think these guys are probably pros (e.g. acting as contractor) so the cost of the flip is considerably less than someone who has to hire everything out. The number of people trying this play is waaaay lower than it was 5 years ago.

    Rate this comment: Thumb up 0

  19. Hugh Dominic

    By SeattleMatt @ 14:

    http://www.redfin.com/WA/Seattle/4316-36th-Ave-NE-98105/home/122792

    Oh, that’s awful! It looks like it’s made of Legos. What a terrible fa├žade.

    In my younger days I bought a flip that had been owned by an old woman. I was taken in by the fresh paint. I spent the next ten years fixing it and replacing failing systems. The lesson is to avoid flips, especially ones where the previous owner didn’t have enough money to keep the house up.

    By David Losh @ 48:

    White people move into neighborhoods and ruin it for every body. The white male, in particular, has no enterprise, and only a sense of entitlement.

    On Queen Anne you can segregate these people out of the main stream. They can live there with the grocerias and day care without bothering any body.

    In West Seattle white people are in every bodies business about every little thing. That’s what makes the neighborhood disjointed. If we could only contain these people to one little area then you might have something. The way it is now they are just a blight that keeps spreading.

    Rate this comment: Thumb up 0

  20. Peter Witting

    RE: Hugh Dominic @ 21 – I’ll never tire of David’s spot-on analysis. At least in Broadmoor, there is a fence to keep them in.

    Rate this comment: Thumb up 0

  21. Ray Pepper

    I would say there is ALOT more Fix and Rent then Flip in the last 6 months…Rental market on FIRE for residential..

    Rate this comment: Thumb up 0

  22. Urban Artist

    It seems like nothing has changed. Now instead of Mom and Pop hobby flippers we have to compete with big investment groups buying up any affordable homes. Then turning around and selling at nearly bubble prices. I just want to buy a decent house, do a little work and live in it forever. Now I have to get into bidding wars with people that have way deeper pockets than I have. It is very disheartening.

    Rate this comment: Thumb up 0

  23. David Losh

    RE: Ray Pepper @ 23

    That’s the Inman News hype this month. It’s a crock of poo. Holding any cash position in a leveraged property will result in losses. Just do the math two years out.

    You’re the one who keeps pointing out all the reasons Real Estate will decline for at least a decade, unless the market collapse completely. Banking is showing huge profits while the consumer base is relying on credit to stay afloat.

    Bankruptcy will be the next shoe to drop, the same as strategic default is the going concern today.

    Rate this comment: Thumb up 0

  24. Rhonda Porter

    Buyers and Sellers of flips need to be aware that there may be additional scrutiny with the appraisals on those homes. Receipts and detailed explanations may need to be provided to justify a huge increase in price in a short time.

    Recently one of my buyers closed on a flip where the home was priced twice as much as what it was purchased for. Since it was FHA and the increase in price was significant, a second appraisal was required – HUD forbids the buyer from paying this cost and… the Fed’s Rule on LO Compensation forbids LO’s for paying for that cost… so the seller and agents chipped in after much grumbling.

    By the way, I prefer the old non-granite kitchen… I would have gone for retro-applicances instead too…guess I’m old fashioned that way!

    Rate this comment: Thumb up 0

  25. Kary L. Krismer

    RE: Rhonda Porter @ 26 – Good point. From memory I believe FHA looks at it if the contract date (not closing date) is 6 months from the last sale date. VA may be shorter (3 months???), and I don’t remember conventional at all. Knowing that could affect your choice of financing, or if close to a date, the timing of your offer.

    I’m not a big granite fan either, although I have seen some unusual varieties which are nice.

    Rate this comment: Thumb up 0

  26. Rhonda Porter

    FHA actually has a waiver out that has been extended thru the end of this year.
    It’s not the time limit that HUD is as concerned with as much as how much more the property is being resold for in a short period of time – 20% more than what the investor paid for the property will trigger the 2nd appriasal and extra love from the underwriter.

    “With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. Early last year, FHA temporarily waived this regulation through January 31, 2011. FHA today posted a notice extending this waiver through the remainder of 2011. This action will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

    “As I noted when we first announced this policy change early last year, because of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Stevens. “Today I can report that this policy change has been effective. Since the original waiver went into effect on last February, FHA has insured more than 21,000 mortgages worth over $3.6 billion on properties resold within 90 days of acquisition.”

    “To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver continues to be limited to those sales meeting the following general conditions:

    All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
    In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
    The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.”

    full press release: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-007

    Rate this comment: Thumb up 0

  27. Kary L. Krismer

    RE: Rhonda Porter @ 28 – Rhonda, what if there is say a 50 or 100 percent increase in less than 6 months, and you’re going FHA (or even conventional)?

    Do they make some sort of effort to document the prior condition, or document the cost of improvements?

    Rate this comment: Thumb up 0

  28. Seattle Bubble • A Front Row Seat to the Battle of the Flippers

    [...] this one is actually more conservative than these flippers’ most recent Everett project (featured on here in September), which they successfully turned around for 2.4 times what they paid for [...]

    Rate this comment: Thumb up 0

Leave a Reply

Do you want a nifty avatar picture next to your name, instead of a photograph of Tim's dog? Just sign up with Gravatar, and make sure to use the same email address in the form below. It's that easy!

Please read the rules before posting a comment.

You have 4 comments remaining on this post.

Archives

Find us on Google+