what to look for when buying a flipped house

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mark4269
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what to look for when buying a flipped house

Post by mark4269 » Sat Feb 10, 2018 1:04 pm

I'm looking to buy my first house in 2018. Stuff is just now trickling onto the market, with a number of obvious flip jobs. Some of these houses look appealing, but how would one know whether the sale price is reasonable or not? For instance, one house I'm considering sold for $400,000 17 months ago and now lists for $570,000.

Anyway, I was hoping someone could offer a checklist or some sort of guidance for evaluating a flipped house. I mean, it's a zero-sum game between the flipper and buyer, and I don't want to be the loser.

BogleMelon
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Re: what to look for when buying a flipped house

Post by BogleMelon » Sat Feb 10, 2018 1:15 pm

mark4269 wrote:
Sat Feb 10, 2018 1:04 pm
I mean, it's a zero-sum game between the flipper and buyer, and I don't want to be the loser.
If it is a zero-sum game between the flipper and the buyer, then you of course could be the loser no matter what (Read my signature)..

Sometimes the seller is the foreclosing bank, which makes winning the game is more difficult.

So unless you have already an extensive experience as a landlord, and know how to fix houses for cheap (for those houses who needed extensive fixes so they can turn profitable whens sold), then I would say, be ready to lose money, and consider it a part of your learning process.

I don't have a check list for you, but here is a list of what could goes wrong (Risks):
- The house stays in the market long before you are able to find a seller, so you pay more than expected in property taxes and other up-keeping costs
- The real estate market plunges right after you buy, and you'd have to wait really long before it picks up again (while paying taxes), or you sell at loss.
- Cost of opportunity, i.e What would this money could get you if you invested it in the market for the same period of holding the house?
- Major hidden issues that you/inspector missed during the inspection, or issues that start happening after you buy
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Bacchus01
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Re: what to look for when buying a flipped house

Post by Bacchus01 » Sat Feb 10, 2018 1:17 pm

Make sure permits were actually pulled and signed off. Does it look like $170K worth of work was done? Was it a cosmetic job or were there mechanicals, wiring, structure done?

seawolf21
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Re: what to look for when buying a flipped house

Post by seawolf21 » Sat Feb 10, 2018 1:18 pm

BogleMelon wrote:
Sat Feb 10, 2018 1:15 pm
So unless you have already an extensive experience as a landlord, and know how to fix houses for cheap (for those houses who needed extensive fixes so they can turn profitable whens sold), then I would say, be ready to lose money, and consider it a part of your learning process.

I don't have a check list for you, but here is a list of what could goes wrong (Risks):
- The house stays in the market long before you are able to find a seller, so you pay more than expected in property taxes and other up-keeping costs
- The real estate market plunges right after you buy, and you'd have to wait really long before it picks up again (while paying taxes), or you sell at loss.
- Cost of opportunity, i.e What would this money could get you if you invested it in the market for the same period of holding the house?
- Major hidden issues that you/inspector missed during the inspection, or issues that start happening after you buy

I don’t think OP is asking advice on how to flip but rather anything to look out for when buying a property from a flipper.

BogleMelon
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Re: what to look for when buying a flipped house

Post by BogleMelon » Sat Feb 10, 2018 1:24 pm

seawolf21 wrote:
Sat Feb 10, 2018 1:18 pm
BogleMelon wrote:
Sat Feb 10, 2018 1:15 pm
So unless you have already an extensive experience as a landlord, and know how to fix houses for cheap (for those houses who needed extensive fixes so they can turn profitable whens sold), then I would say, be ready to lose money, and consider it a part of your learning process.

I don't have a check list for you, but here is a list of what could goes wrong (Risks):
- The house stays in the market long before you are able to find a seller, so you pay more than expected in property taxes and other up-keeping costs
- The real estate market plunges right after you buy, and you'd have to wait really long before it picks up again (while paying taxes), or you sell at loss.
- Cost of opportunity, i.e What would this money could get you if you invested it in the market for the same period of holding the house?
- Major hidden issues that you/inspector missed during the inspection, or issues that start happening after you buy

I don’t think OP is asking advice on how to flip but rather anything to look out for when buying a property from a flipper.
Oh sorry my bad! Misunderstood.. you are right!
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

veindoc
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Re: what to look for when buying a flipped house

Post by veindoc » Sat Feb 10, 2018 1:34 pm

I once looked st a flipped home and the buyer left a binder with each showing with permits and receipts documenting all the work that had been done. Whether or not the work was done well, it’s hard to know, but it gave you a sense of the value added. The home was sold above asking. Check out the comps too. Just because $150k of work was put into the house doesn’t mean it’s worth $150k more.

littlebird
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Re: what to look for when buying a flipped house

Post by littlebird » Sat Feb 10, 2018 1:36 pm

Unless the house is truly unique, and you have extra cash to pump into it, I would avoid a flipped house. I speak from experience, although my house was unique, I knew what I was getting into, and I did have the extra cash put aside for the inevitable, what shocked me was the extent of the lies my seller was willing to put into writing in order to make the sale. I don't know how common that is among flippers, but I suspect it's not uncommon. :annoyed

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jfn111
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Re: what to look for when buying a flipped house

Post by jfn111 » Sat Feb 10, 2018 1:42 pm

The price you pay will be based on comparative selling prices. Some of my rehabbers buy at Auction, for cash, and get a great deal on some properties.
Permits are number one. Make sure all of the HVAC, electrical and plumbing were done by licensed professionals and inspected afterwords.
A good inspection is key. Make sure you use an Independent inspector to thoroughly check out the house.
Talk to the neighbors. I always bring my buyers over to the neighbors to get the "real scoop" on what's going on with the property.

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Raymond
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Re: what to look for when buying a flipped house

Post by Raymond » Sat Feb 10, 2018 1:49 pm

A former co-worker and her husband bought a house from a flipper.

When they decided to make some changes to the guest bathroom several months later, they found that the toilet wasn't bolted to the floor, and the mirror covered a fairly large hole in the drywall.

So wiggle the toilets and look behind the mirrors :P
"Ritter, Tod und Teufel"

runner540
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Re: what to look for when buying a flipped house

Post by runner540 » Sat Feb 10, 2018 1:53 pm

Haven't bought a flipped home, but live in a neighborhood where there are a lot of flips being done. Walk around the neighborhood, talk to the neighbors, the postman/woman, folks who are there everyday. I ran into the postal delivery person on a walk and we started chatting about all houses for sale, and he told me about the shoddy work and shortcuts he had seen the roofers taking on a particular property. The property was sold, I have no idea if it was something the buyers could have found in an inspection.

harrychan
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Re: what to look for when buying a flipped house

Post by harrychan » Sat Feb 10, 2018 2:04 pm

Find a solid home inspector and a certified electrician. Not one referred by either agents.
This is not legal or certified financial advice but you know that already.

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TxAg
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Re: what to look for when buying a flipped house

Post by TxAg » Sat Feb 10, 2018 2:14 pm

harrychan wrote:
Sat Feb 10, 2018 2:04 pm
Find a solid home inspector and a certified electrician. Not one referred by either agents.
This!

Even go as far as having a different person for structural, electrical, plumbing, hvac, etc. it will cost a little more, but will be worth it.

TropikThunder
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Re: what to look for when buying a flipped house

Post by TropikThunder » Sat Feb 10, 2018 6:16 pm

TxAg wrote:
Sat Feb 10, 2018 2:14 pm
harrychan wrote:
Sat Feb 10, 2018 2:04 pm
Find a solid home inspector and a certified electrician. Not one referred by either agents.
This!

Even go as far as having a different person for structural, electrical, plumbing, hvac, etc. it will cost a little more, but will be worth it.
And don't skimp on the owner's title insurance. :|

Flippers with shady practices (not all of them, but they exist) have a higher than average likelihood of stiffing sub-contractors (who can get contractor liens on the house).

Nearly A Moose
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Re: what to look for when buying a flipped house

Post by Nearly A Moose » Sun Feb 11, 2018 4:25 am

Tread extremely carefully. I would not have bought mine knowing what I know now. So far nothing overly serious, but poot workmanship and obvious corner cutting. I will look next time at homes owners have lived in for awhile.

Different flippers have different reputations. Figure out what your potential seller's is. An agent familiar with your neighborhood will probably know.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

bungalow10
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Re: what to look for when buying a flipped house

Post by bungalow10 » Sun Feb 11, 2018 4:35 am

I've been house hunting in markets with a lot of flipped homes, just a few observations below..

1. The obvious - these houses are bright and shiny and new-looking. Check quality of the finish on the floors (often times they are cheap, cheap, cheap hardwood) and things like quality of counters. I've seen very thin granite used in kitchens, low-end but very pretty appliances, cheap cabinets. It all looks nice until it starts getting a little abuse.

2. Water damage. My realtor stayed behind a showing once and talked to neighbors and found that that spring the house had 5.multiple FEET of water in the basement just a few months prior. The flipper gutted the whole house and put in fresh drywall, floors, etc. No evidence of water damage on the new drywall, but no work was put into fixing the drainage issues either. Smoke/fire damage is another one to watch for.

3. Permits and variances - make sure permits were pulled and all variances approved.

4. Licensed work - make sure it's not all DIY jobs. One house I saw a few weeks back was stylish and modern and photographed really well and showed okay, but they did all the work themselves. There were floors installed poorly, countertops that weren't flush, a paint job that covered rotted cedar siding.

5. Floor plan. Flipped houses are most often showed vacant which makes it hard to tell that rooms are awkwardly small or that the windows are in weird places. Sometimes theses houses get to be flips because they have bad bones that make them unappealing to buyers. The shiny and new finishes and the vacant rooms make it difficult to see things like poorly flowing floorplans, lack of light, or rooms that will make furniture placement difficult.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

wilked
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Re: what to look for when buying a flipped house

Post by wilked » Sun Feb 11, 2018 6:33 am

mark4269 wrote:
Sat Feb 10, 2018 1:04 pm
What to look for when buying a flipped house
In short, another house.

“Flippers” are financially incentivized to do it as cheaply as they can, and therefore incentivized to cut corners. Not all do, but in many cases you won’t find out until after you own the home.

Not worth the risk in my opinion

mikeast
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Re: what to look for when buying a flipped house

Post by mikeast » Sun Feb 11, 2018 7:11 am

I thinks its critical that you take the time to find a really good home inspector. Most of them don't seem to be worth their fees.
And if your working with a buyer's agent like I did, get rid of them during the inspection. Mostly I wanted to add that its not just
house flippers who are trying to get it done as cheaply as possible. I worked at Lowe's for a few years after I retired from my regular
career. Every single day I heard the same questions from regular home owners as well as flippers: How do I cover it, hide it, put a band aid on it, make it look OK until its sold and then I don't give a rat if it falls apart or not.

carolinaman
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Re: what to look for when buying a flipped house

Post by carolinaman » Sun Feb 11, 2018 7:23 am

Personally, I would avoid flipped homes. Too many of these are done by people with limited experience and they tend to cut a lot of corners. They focus on appearance and trendy things. Flippers try to get top dollar and, as a group, are less trustworthy. If I were buying, I would be looking at homes other than flips. I think you have a better chance of getting a better home and value.

curmudgeon
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Re: what to look for when buying a flipped house

Post by curmudgeon » Sun Feb 11, 2018 10:26 am

I would definitely consider typical flips as, on average, more risky than the general "owner-occupied" home, and your question is well asked. I don't think that there is a single answer, other than to proceed with special caution. Ask for material specifications and look up permit status for any major work (just because the applied for them doesn't mean they got final signoff). Sometimes you can find information/pictures from the prior listing online.

A good flipper does actually bring a couple of significant value points to a project house that you might not be able to do yourself. Along with the financial ability to hold the house unused while being renovated, they should have an eye for potential which might see possibilities for improvements that most of us would miss, and they should have a network of contractors who can do cost-effective work which most of us would not be able to duplicate.

The problem is that they have every incentive to cut corners, and you may pay the price. The big concern areas that I would watch out for would be plumbing and water-seal finish areas. Baths are typically renovated, and shortchanging of waterproofing work can lead to problems later. Exterior and roof may have similar risks. In general, you aren't getting any warranty for the work. Landscaping is almost always not fully established, even if it looks good for the showing; without a lot of extra attention, it will usually start looking bad within a year. Cheap (or badly applied) paint may also fade or peel quickly.

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Smorgasbord
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Re: what to look for when buying a flipped house

Post by Smorgasbord » Sun Feb 11, 2018 11:04 am

Flippers are often very good at making houses look appealing for a showing, so I'd suggest you get an idea of how much various things cost so you can accurately compare the flipped houses to owner occupied ones. For example, when you see a room painted a hideous color in an owner occupied house you should think "huh, that will take a Saturday and $50 worth of paint to fix."

Skiffy
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Re: what to look for when buying a flipped house

Post by Skiffy » Sun Feb 11, 2018 11:22 am

We live in a 25 year old house, 4 houses were built in a neighborhood with homes that are 70 years old.

These houses are ripe with flippers, many one or two owner homes that have never been updated. Yellow toilet anyone? No master bath, only one bathroom, unfinished basements. Kitchens that are 70 years old. 2 houses within a block are currently being flipped, can’t wait for the open houses!

WhyNotUs
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Re: what to look for when buying a flipped house

Post by WhyNotUs » Sun Feb 11, 2018 11:26 am

Don't think to need to do much different regardless of whether the house was flipped, with any seller must recognize that there is more to a house than a few cosmetic improvements.

Does the floorplan work for you?
Neighborhood selection criteria met?
Can you afford it?

If so, create contract with solid DD off-ramps and do your homework.
Inspection, title commitment, and appraisal will tell you quite a bit.
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Watty
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Re: what to look for when buying a flipped house

Post by Watty » Sun Feb 11, 2018 11:46 am

It would be easy to say never to buy a flipped house but a new home builder has all the same motivations to skip on quality and lots of people buy new homes. A house could also be flipped five or ten years ago so buying a house from an owner does not automatically mean that it is not a flipped house.

You just need to be super careful since there are lots of potential problems.

One problem is that even if the house was fixed up OK you are unlikely to get a good price on it since the flipper will work hard to get top dollar and that is their only motivation. When you are buying a house from an individual they may be motivated to sell for some other reason so you may be able to get the house at a better price. If they are selling because of something like a death, divorce, transfer, or they have already bought another house then they will be highly motivated to accept the first halfway reasonable offer.

My son had made an offer on a flipped house and the inspector was surprised to see that the rafters in the attic had been painted. It turned out that there had been an undisclosed significant kitchen fire and the flipper just painted over the damaged wood in the attic. In the kitchen they had just put up new drywall over the charred studs and when you looked in the electrical outlets you could still see charred 2x4s. My son did not buy the house but amazingly enough it sold about two weeks later for higher price. :oops:

Any new landscaping may not last very long since it may have just been planted last week. Older trees and bushes may have also been pruned back badly at the wrong time of year and may not survive.

One thing to keep in mind is that the house may have been vacant for a year or more.

It is not uncommon for people to come in and strip a vacant house of all the copper pipes so they may have been replaced, badly, with cheap plastic pipes.

If the house was vacant for a long time mold and water leaks are a potential problem that might have just been painted over.

The sewer system may not have been used much for a long time and will be prone to having problems when it gets regular use again.

tim1999
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Re: what to look for when buying a flipped house

Post by tim1999 » Sun Feb 11, 2018 12:02 pm

One thing I would do (along with other due diligence) is try to find photos from the MLS listing (and hopefully the listing itself) when the flipper bought it, along with Google Earth streetside-type photos from a couple years ago to get a sense of how trashed it was prior. For example, I see wording in foreclosure listings like "EXTENSIVE MOLD IN BASEMENT - ENTER AT OWN RISK" that would cause concern over how well the flipper, who is motivated by time and money, remediated it.

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Re: what to look for when buying a flipped house

Post by Jack FFR1846 » Sun Feb 11, 2018 12:11 pm

I never bought a flipped house but have watched TV shows where the hosts buy a house and then flip it. I do remember one house that was bought from another flipper who supposedly ran out of money. During basement changes to open it up, they found that sheet rock was massively covered with mold. The previous flippers simply put up new sheet rock over the molded sheet rock. They also found that a pool in the back yard had simply been filled in and landscaped over. This is not legal (in that location). The show hosts had to dig out the pool, break up and remove all former pool structure and then fill in again. After fixing everything, they sold the house and took a huge bath on the sale (hundreds of thousands).
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Sandtrap
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Re: what to look for when buying a flipped house

Post by Sandtrap » Sun Feb 11, 2018 12:12 pm

mark4269 wrote:
Sat Feb 10, 2018 1:04 pm
I'm looking to buy my first house in 2018. Stuff is just now trickling onto the market, with a number of obvious flip jobs. Some of these houses look appealing, but how would one know whether the sale price is reasonable or not? For instance, one house I'm considering sold for $400,000 17 months ago and now lists for $570,000.

Anyway, I was hoping someone could offer a checklist or some sort of guidance for evaluating a flipped house. I mean, it's a zero-sum game between the flipper and buyer, and I don't want to be the loser.
1 Can you sell it in 6 months or 1 year, or less, and get all of your money back? (appreciative value) If not, you're paying too much.

2 Can you rent it out and pay all of your expenses with the rent? No negative cash flow. If not, you're potentially stuck.

3. Were the total estimated costs of the "flipped" upgrades plus the original value comparable to present market value?

4. Are you compensating the "flipper" well for his efforts or are you paying for a brand new Ferrari and a vacation to Europe?

Some "flippers" are fair, some are cheap cosmetic and budget renovation jobs. Avoid the later. Check everything. Check what issues the home had before the flip, what was addressed, what has been hidden. A "flipper" is not motivated to invest in upgrades for the long term as one would his own residence.

Personally, I would rather buy an abandoned home or a "pre flip" than buy a property "post flip".
j :D

spammagnet
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Re: what to look for when buying a flipped house

Post by spammagnet » Sun Feb 11, 2018 12:20 pm

mikeast wrote:
Sun Feb 11, 2018 7:11 am
I thinks its critical that you take the time to find a really good home inspector. ...
They're hard to find. There is a very low entry barrier in the field. Many just pay a subscription to a home inspection software web site to make pretty reports with pictures they took with their smartphone.

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Re: what to look for when buying a flipped house

Post by Lafder » Sun Feb 11, 2018 12:43 pm

When I look at a house I consider is there room for improvement such as the types of upgrades many flips already have. Or is the house maximally improved for the house and neighborhood?

If the house has room for improvement, I figure the price should not be at the top for the neighborhood.

With a flip, I would expect to pay more since the improvements have been done. Is there still some room left for improvement, or will it just be wear and tear from here?

If you are like me and prefer not to make the choices for upgrades or live through home improvements, a flipped home has the work done for you.

As described, some flippers do fast shoddy work with materials that superficially look good but do not hold up to actual use and wear. But I have also seen quality flips since the builder cares about their reputation and there is money to be made for them, even with higher quality materials.

I know someone who moved into a flipped house and there were a lot of problems with the pipes/drainage since workers had washed too many remodel materials down the drain lines. Yes it was fixable. But some things like shower drainage can be hard to judge unless living in a home and using the plumbing. You can run the water at tubs and showers and sinks for awhile before buying to be sure they are draining. I had tile work done in my own home and the kitchen sink ended up clogged after! (They swore they did not wash anything down the drain, but it worked fine before they did the tile work).

My own home had a master bedroom and bath remodel that looked beautiful and high end by the previous owners. But after living here a year, the stucco was falling off and the grout has problems. (Beyond any warranty and not covered by the home inspection). It seems the stucco was mixed wrong. I had to pay to redo it. So even what looks like a quality nonflip can be shoddy quality over time.

I would most definitely get a home inspection. And really take a close look at the materials and quality.

I would not rule out a flipped house. Just do not be overly charmed by the superficial beauty and take a deeper look at the harder to change issues such as location and floorplan. All of the pretty finishes you see, you could recreate in any house :) (at expense and stress on your part)

lafder

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