Investment or Flip?

Two items seemed to dominate my inbox this weekend.

1. Growing concern on the housing market due to "Flippers".
2. Growing concern on the housing market due to "Sub Prime Lenders".

I'll deal with Flipping today - Sub Prime tomorrow.

We all know what a flipper is right?
One who buys a house and turns it around for a quick sale for profit.

Let me make this perfectly clear.
There is nothing wrong with flipping.
Stock traders do it all day long, people flip cars, horses, and even baseball cards.
Flipping the right house is OK too.
It is a real and viable way for the right person to make money in the real estate market.

Did you catch the caveat?
(It has to be the right house and the right person)

The problem with flipping is that so often it's all wrong.
It's the wrong neighborhood, wrong style, wrong kitchen, wrong price and so on.
Match that with the wrong person, who doesn't know the market, who gets the wrong loan, wrong expected ROI, with the wrong assets and reserves.

Flipping involves buying a selling a house, that should be simple enough.
Anyone can do it right?

All you need to do to become a millionaire overnight is have the right system.
Lucky for you they just happen to be advertising one on TV!
And look! All those other people are independently wealthy - if they can do it - so can I!

No wonder why flipping is the approach used by all those late night infomercial get rich schemes.

"We Pay Cash For Houses!"
"Real Estate Investor Apprentice Wanted"
"Buy a Home for Pennies on the Dollar"
"Buy Foreclosures, Buy Tax Liens"
and so on.

To be a real flipper there's a couple of things you have to have:
You must have capital (that means mucho pesos sitting in the bank).
You must know the neighborhood well.
You must know the market well.
Short Term interest rates are your friend.
Credit is your friend.
Speaking of friends; you'll need a Realtor, a Mortgage Person, a Contractor, a Painter, a Drywall expert, an Electrician, and a Plumber as best friends or business partners.
You'll need a well thought out business plan for each and every flip.
You'll need proper cash flow analysis.
You'll need to buy right, upgrade right, and sell right.
You'll also need a truckload of luck to make it all work.

Sometimes you need to buy and hold for a while.
That seems to be contra to flipping thoughts.
Get any of the above wrong and you could end up in trouble quick.

In the Bay Area, the Sacramento area has always offered up less expensive housing options.
Buying any house in the Bay Area is going to be expensive.
When looking at the vast expanses of the central valley, they can build as many houses as we want to buy. Supply and demand keeps the values down (more supply than demand).

It's the lower price that attracts the uneducated flipper to the area.
It's been described as a hotbed of flipping.
It's been this way for many years, nothing new.

But here is something that is new!
It's a blog detailing Sacramento area flippers who messed up.
Appropriately titled too! flippersintrouble.blogspot.com

I don't know who Max is but he has access to the MLS and is tracking some pretty interesting properties. There's some good information here!

I've detailed another flipping blog in the Sacramento area before.
Casey Serin's ongoing personal nosedive into financial ruin, http://iamfacingforeclosure.com

I even found a list of other "Flippers in Trouble" blogs
HERE