Quote:
Originally posted by ben parrish
Porsche-O-phile, Why do you think that flipping is a "dirty" way to make money. There is a tremendous amount of skill involved in taking an unwanted piece of property, refurbishing it, and selling it for a profit. It is not for everyone as it takes hard work and patience. It is nothing like gambling in the stock market and I assure you, it is not dumb luck.
Do you feel the same way about someone buying a beater 911, rebuilding and repainting it and selling it to someone that wants a nice 911 for a profit???
I am not trying to be confrontational, just curious of why you feel this way.
Ben
|
I've seen too many people with NO skill whatsoever make obscene profits in this game. You can't convince me it takes skill - it doesn't. It takes dumb luck. Skill might help a bit, but all the skill in the world won't offset bad luck and lack of skill is certainly more than offset by good luck.
Look, I'm an architect by trade - I know a thing or two about construction. Here are some of the problems created by the "flipping" craze as I see it:
1. Barriers to entry - the bubble created by this stuff has raised barriers to non-owning people from getting into home ownership in a lot of markets. The choices are either to (1) be extrordinarily lucky or independently wealthy or (2) take a "sucker" mortgage like an I/O, ARM or other time bomb that leaves one vulnerable to unacceptable risk and/or builds no meaningful equity, except if double-digit appreciation continues, which it won't. It's a good time to be in the market if you're lucky enough to already own and have a chunk of equity to re-invest. It totally sucks for everyone else. This is doing nothing less than killing the American Dream for a lot of people.
2. Lack of quality - there are certain things owners can do to improve their properties, but I've seen a lot of harm done as well. For every person that puts reasonable care and skill into their improvements, it seems there are ten that have no clue what they're doing and end up "slapping perfume on a pig" at best or creating bona-fide life-safety issues or code violations at worst. Even more frightening, there are huge rises in instances of non-permitted work and work performed which creates more problems than it solves - I'm betting that there are going to be LOTS of lawsuits in the next few years as a result of non-disclosures or shoddy workmanship that was slapped onto substandard properties in an effort for some "flipper" to do a cheap "turn and burn" on the property. I actually am starting to hear about this somewhat regularly now. Some of it is just head-scratchingly stupid, some of it is actually seriously dangerous. It's only a matter of time before someone gets killed in one of these properties because an unscrupulous "flipper" either hid something or screwed something up. . .
3. Economic Risk - There are a LOT of sub-prime, weird, creative "sucker" loans out there. As I said above, a lot of people have been whipped into a frenzy by the lure of easy money or fear of being eternally priced out of the market, and thus been talked into signing up for VERY stupid financing terms. Look at foreclosure rates now - there are already rumblings of a lot more. As interest rates continue to creep up and wages continue to not keep pace with the huge mortgage payments a lot of these people hold, something's going to give. When the rates of foreclosures rise, it's going to drag a LOT of the economy down with it. I'm not just talking about people in residential construction, contracting, brokerage, appraisal, etc. but many, many other sectors as well. Virtually EVERY fund for the last four or five years has linked itself to "mortgage securities", since that's where the money was being made in the domestic economy. Well, live by the sword, die by the sword. If/when that sector crashes, it's going to pull a lot of other things down with it and it could snowball very quickly into a recession or worse. There's a huge amount of risk out there right now, and most of it is only being staved off by creative incentives and dumb luck that there hasn't either been another terrorist attack or other trigger for an economic downturn.
While things are okay for now, it's a house of cards. This "house of cards" seems largely promulgated by flippers and the banks that finance them. Unfortunately, they won't be the only ones to get burned when it crashes down - it'll be EVERYONE. There's a lot of people out there that have been on spending sprees based on "paper profits" rooted in expected rates of return. Dangerous move.
I've always been fascinated by real estate because it's historically been a way that an average person can better themselves and their situation with a reasonable chance of success. The downside is recently it's been screwed up - it's like a public pool that you like to go enjoy on a hot summer day that you go to one day and realize that 2,000 of your "closest friends" have also discovered. Takes all the joy out of it and ruins it. The residential RE market is quite dead. Yes, there might be some ways to still make money on it if you're dedicated and very lucky, but this party is over and the fallout/hangover is just starting.
If anything, I'd look at a residential property to buy and live in/hold and commercial property to invest in. That's just me though.