[newopty]

Here we go again. House flipping is back with the highest percentage in Las Vegas.

House flipping: Deja vu all over again

[Willy702]

I don't get it. People really complain there are investors out there who want to buy substandard or dated housing and make them higher value? Who loses in this? If loans for flips were really easy to get I could see the risk, but they are not. Most flips are people putting 30% or more equity into an already reduced value home. Very little risk to anyone else but the buyer.

People need to stop being such simple minded idiots about the recession and the recovery from it. So many bad narratives that are simply not true. Flippers doing work weren't a problem before, idiots thinking they could get rich pre-sale buying condo and housing developments were the problem among others. Flippers now buying houses is a sign of confidence in a market and as noted in another thread so are rising rental rates. These are all precursors to a good sized run up in housing prices. Then I suppose we will bring back in all the whining about how houses are worthless and I deserve to buy a house at 2010 prices.

[BBMW]

If flipping is picking up, new construction can't be far behind.

[AdamSelene]

Originally Posted by Willy702

I don't get it. People really complain there are investors out there who want to buy substandard or dated housing and make them higher value? Who loses in this?

I'll play devil's advocate. Ignore trashed houses that require extensive rehab, no argument there. But taking houses that are just a bit dated, and increasing the cost $30K more than necessary to improve them with luxury addons isn't helping people in need of affordable housing. Ripping out a perfectly good bathtub to install an artistic looking shower, or replacing a clean counter with granite, are functionally boondoggles.
It's also forcing your style choices on the future homeowners who would have preferred the option of fixing to their tastes. We're all familiar with the everything-beige syndrome that flippers inflicted on thousand of homes during the last run; now I'm noticing lots of little multi-colored tile on the walls, which will seem like 70s decor in a decade. I know I wouldn't want to pay a premium for your subjective fashion preferences.

[BBMW]

^
They bought the house, they own the house. They get to decide what to do with the house, including if and how it's renovated. They get to decide when the sell the house and how much to list it for. If they get offers, they get to decide whether to accept it or not. The same can be said for the next buyer. What anyone else thinks is irrelevant.

End of story.

[WestieJeff]

Many buyers want a turn key, move in ready home. The biggest issue I see is buyers generally don't have the cash to drop 30k on a remodel after they just paid a down payment and closing costs. The flipper does the remodel and the new buyer can finance the whole shebang and the buyer pays a premium for that. The downside is flippers are concerned only with how things look. Using cheap materials and shoddy workmanship is fine since even crappy work lasts a year or two.

[SportyandMisty]

Originally Posted by AdamSelene

I'll play devil's advocate. Ignore trashed houses that require extensive rehab, no argument there. But taking houses that are just a bit dated, and increasing the cost $30K more than necessary to improve them with luxury addons isn't helping people in need of affordable housing.

This is how economic value is created, and it is good for everyone concerned.

The flipper buys a house at market value and enhances it through the addition of labor and materials, and sells it at a new market price to a willing buyer.

Just to make it a bit more concrete, let's say the flipper buys a house at the market price of $100K, and then enhances it via $20K of labor and materials, and then sells it to a new end-buyer for $150K.

The new end-buyer of the house is better off because he only paid $150K for the house even though he would have been willing to pay more (say, $160K). That's $10K in Consumer Surplus.

The laborers and materials suppliers are better off because they, too, have sold their products for a profit.

The flipper is better off because he sold the house for $150K at a $30K profit - which means he would have been willing to take less for it -- thus he created Producer Surplus.

This is good for everyone. Everyone makes a voluntary transaction (no guns to heads) so everyone is better off.


read here: https://en.wikipedia.org/wiki/Economic_surplus

[logline]

Originally Posted by SportyandMisty

The new end-buyer of the house is better off because he only paid $150K for the house even though he would have been willing to pay more (say, $160K). That's $10K in Consumer Surplus.

This part of your analysis doesn't ring true for me. Why would a buyer willingly pay $160k (or even $150k) for something he can get for $120k doing the reno himself and choosing his own preferences in style/colors/materials/etc? That makes no sense to me. Everybody else is making a profit off the stupidity of the end buyer in your scenario, but that's not efficient market dynamics.

[beachhead]

Originally Posted by logline

This part of your analysis doesn't ring true for me. Why would a buyer willingly pay $160k (or even $150k) for something he can get for $120k doing the reno himself and choosing his own preferences in style/colors/materials/etc? That makes no sense to me. Everybody else is making a profit off the stupidity of the end buyer in your scenario, but that's not efficient market dynamics.

The buyer may not be stupid, lazy or whatever. They may not want the hassle of a reno, they may not have the capability, they may not want to deal with contractors, they may not be able to replicate the work for the same price the flipper did, or heck, they might even LIKE what the flipper did.

Nothing wrong with flippers. It's their money, they take the risk with it, and if there is a reward good for them.

[logline]

Originally Posted by beachhead

The buyer may not be stupid, lazy or whatever. They may not want the hassle of a reno, they may not have the capability, they may not want to deal with contractors, they may not be able to replicate the work for the same price the flipper did, or heck, they might even LIKE what the flipper did.

Nothing wrong with flippers. It's their money, they take the risk with it, and if there is a reward good for them.

Sorry, I still don't buy it. If somebody gets to have full control over the color, materials and style they want and get a 25% discount for doing so, they'll hire it out themselves in a heartbeat. It wouldn't make sense not to. Why pay a premium for someone else to make a profit off you and not make it to your standards?