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So You Think You Want to Buy and Flip Homes?
Ancient and protected lava site on Big Island where mongooses freely roam.
If you think you want to buy and flip homes, consider this. Directly in front of my working-vacation cabana is an ancient lava site — the free lawn art of Big Island — where I am privileged to observe a Rikki Tikki Tavi dashing about, scurrying across black rock, then resting to catch his breath, protected under clusters of sea grass before scampering to another spot. As a kid, I was enamored by Rudyard Kipling’s, The Jungle Book, foreign places and exotic animals and especially the story of the brave mongoose. The closest critter to a mongoose I’d ever seen at that time in Minnesota was a gopher.
You see invasive mongooses all over Hawaii now except for Kauai, introduced by sugar cane owners in the late 1800s as a means to control rats. The main problem with that premise is rats are active at night and mongoose are not. I wish the analogy were that simple to explain why so many people in Sacramento lose their shirts when they try to buy and flip homes, but maybe it is. Maybe they just don’t know what they are doing and don’t know that they don’t know what they are doing.
Every time I take a fixer listing in Sacramento, I am bombarded by calls from people who want to buy and flip. It’s like they woke up one morning and decided for no known reason that they have the a) experience, b) professional crews, c) real estate knowledge, and d) money to buy and flip, when they usually possess none of those things. They think how hard can it be? Buy, fix up and sell? Damn HGTV crap.
I was reminded of this today when I noticed a new listing on the market in Land Park, and my immediate thought was, hey, that home in Land Park is at least a hundred thousand if not two over market value. The location was all wrong for that price range, the home was too small and the upgrades were not very attractive, not really what buyers want, and the photographs were, let’s just say less than stellar. OK, they were embarrassing. My immediate thought was this was a home purchased as a buy and flip by an out-of-towner. The history and tax rolls confirmed my suspicions. Well, maybe they will snag an unsuspecting buyer from the Bay area. It happens.
I try to be non-judgmental when I receive calls on my pending listings, but the novices who want to buy and flip break my heart. They ask in earnest if I will call them if anything happens to the pending sale. I explain that we had multiple offers, bidding wars, the home did not sell at list price, it sold much higher. I know if I have to explain this part, the would-be guys who want to buy and flip are headed for trouble. Before I can offer empathy though, the callers often launch into an insult — a promise that I could “double end” the transaction and make twice the commissions plus I could later sell the home for them, as though that sort of scenario would motivate any Sacramento listing agent but the crooks. They don’t care if they do business with crooks, apparently, and maybe they’ll find one of those, too; it’s just not me, not how I do business.
Buying a Fixer Home in Elk Grove Presents Opportunity
As long as that fixer home in Elk Grove has not lost its integrity, I would consider buying it, providing the price was right. Many people would agree with this premise — I should more clearly define “many people” as the people who don’t mind doing repairs or fixing up homes. Because not every buyer wants to buy a home if it presents a few challenges. As with life, I suspect most don’t enjoy challenges. They would prefer a challenge-free life, a marshmallow life.
On the other hand, I love challenges because for me it’s a very clear set of purpose. After I study what’s presented, I can envision the conclusion, the outcome, the goal; it’s crystal clear. Take home improvement projects, for example. I love to remodel homes and turn them into pieces of artwork, and I’m just about done with my own home so you know what that means. It means I need to work on somebody else’s home because my husband is not yet ready to move.
I’m too busy, though. Which means my improvement urges are suppressed. I sell real estate in a 4-county area in Sacramento, and that career keeps me plenty busy working with clients. When I spot a fixer home that is begging for work, I can’t help but feel pulled toward it. It’s a sickness of sorts. Like my dead ex-husband who liked to start new companies always had a problem driving past a “for lease” sign because it called to him to rent the space, remodel it and open a business. See what I mean? Stupid. You catch that home improvement bug, and you yearn to tackle new projects; like a chocolate craving, you can’t help it.
This Elk Grove agent has listed a home in Elk Grove that is crying out for such a project. It’s a short sale, but it’s pretty much a guaranteed short sale for reasons I can’t go into. Trust that if you write an offer, it will close. There is a little bit of dry rot, it needs a new roof (approx $10,000), I would replace the carpeting (because it’s stretched, dirty and an icky color), and the seller says the toilet upstairs needs a new seal and had leaked, which is why the water is turned off.
This home is priced roughly $70,000 below its fixed-up market value according to the 1/2 mile comps for a 3 bedroom, 3 bath, over 2100 square feet in Foulk’s Ranch. But the flippers nowadays seem to have higher profit margins, they want steeper discounts, which a short sale won’t necessarily offer. Some don’t seem to understand that banks aren’t figuring in the flipper’s profit margin when determining value on those BPOs. At $255,000, it’s a great deal for an owner occupant, though, especially a first-time home buyer.
Slap on a new roof through an energy-efficient mortgage, perhaps fix the few spots of dry rot to get a mortgage, and deal with the rest of the stuff later. Even a 203K loan would suffice and handle all the repairs. But many homebuyers want turn-key projects, and don’t care about the quality of the work. I’ve always figured I’d rather have the home fixed up according to my own standards and not those of some guy out to make a fast buck, but that’s me, and I’m not normal. Remember, I love home improvement projects.
So, here’s the deal. Either buy the home today, do your own repairs the right way and pocket the leftover equity, or buy it later from a flipper and pay a premium for the opportunity.
Check out 7113 Ballygar Way, Elk Grove, CA 95624, offered by your Elk Grove agent, Elizabeth Weintraub, Lyon Real Estate, 916.233.6759.
How to Pick a Sales Price Without Comparable Sales
Trying to pick a sales price when there are few to none comparable sales is a little bit tricky in our Sacramento real estate market, but this is when an experienced real estate agent can be very helpful. Sometimes it comes down to relying on gut instinct, mixed with a bit of pixie dust sprinkled on top of those dusty old comparable sales, to come up with an accurate and reasonable number.
Further, I might do goofy things that are right on target such as grab a random sales price from 2005, divide it in half, multiple that result by 50%, and then slap another 25% on top to arrive at an estimate of value, which is often much closer than Zillow’s screwy Zestimate and computed about in the same fashion. But that’s just to double-check the ballpark. It’s not to pick a sales price.
When talking with a seller who just closed escrow yesterday on a fixer home I had listed, we had discussed the sales price and reviewed how we arrived at the final number. I confessed that it wasn’t based entirely on the comparable sales. My input was based a lot on how much I thought we could get for the property, resulting in the intrinsic market value of that home. The seller laughed and said he realized I had grabbed it from thin air when I made the recommendation.
Well, I wouldn’t say thin air. But it was an educated guess. It was an educated guess because although I had examined the comp prices for turnkey homes, I had not arrived at a value for the unknown condition of the property, which was basically trashed. I had been expecting to see a home in move-in condition. These types of homes are a bit difficult to price when the home has so much wrong with it that you can’t even figure out which part of the house you’re standing in. Oh, this must be the living room, I muttered to nobody, when it dawned on me where I was as the floor suddenly sloped down under my feet.
After hitting the market, lots of agents called to give me push back and to complain about the price. They thought it was too high. Many offered substantially less. They moaned and groaned. Hey, give the sellers what they want, I suggested; it’s simple, just do it. Don’t yak at me about the comps and your honorable intentions. Put up or shut up. Then, two buyers submitted offers that were very close to our asking price, and those were the two buyers we worked with, closing with the best offer and zero renegotiations during escrow.
Sometimes, you just get lucky trying to pick a sales price, but it helps to have experience on your side when you’re the seller.
