buy and flip

So You Think You Want to Buy and Flip Homes?

buy and flip

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.

Why Sacramento Real Estate Agents Get All the Good Deals

good deals go to agents

Agents get the good deals that home buyers pass up.

Do you know why so many of the good deals seem to go to real estate agents? I’ll tell you why. It’s not because agents are stealing all the good deals. It’s because they recognize a good deal when they spot it. When one is working in the real estate business day after day and year after year, I don’t care how unfocused you are, eventually some of it rubs off and sticks with you. So many of my long-term listings that other buyers and investors pass by because the properties need work, end up sold to a Sacramento Realtor. It’s sorta becoming par for the course. In fact, I’ve thought about buying a few myself but that would be a conflict of interest.

A few years back I had a short sale home in Carmichael to sell that was completely trashed. The seller just picked up his briefcase and walked out, leaving all of the furniture and his personal belongings. Same situation for a short sale home in Galt, now that I pause to reflect, and both sold about the same time. That home in Carmichael, though, nobody would buy, even though it was only $100,000 and the bank had approved the short sale. We were apart by $5,000 and the investor bit the dust. Finally, a real estate agent picked it up, fixed it up and flipped that home for about $300,000.

Investors and other buyers today seem to pause at the sales price and then offer less for no apparent reason. They act like they’re bartering for a trinket at a Tijuana flea market, saying things like I’ll give you $350,000 for a home listed at $395,000. It makes me want to retort: Tell you what, why don’t we raise the price to $450,000 and then you can offer $395,000? They don’t understand that it’s not make-me-an-offer season in Sacramento, and many homes are generally priced right where they should be. If list price and market value are synonymous, why would an investor get a break?

Homes that need work often linger on the market because they are not what most first-time home buyers want to purchase. Although many fixer upper prices are already reduced to reflect the work required, most home buyers desire turn-key, ready to move into, and they don’t want to tackle any work. If a home needs a roof, for example, they can’t seem to figure out that a roof might cost about $10,000, and they can finance that roof through an Energy Efficient Mortgage (which takes one day to install) and, when they are finished, they will own a home with a brand new roof, and the sales price is still a bargain.

I sold a home like that in Elk Grove to another real estate agent last year, and I’ll most likely do it again this year. That’s because agents see the value. They know the neighborhoods. They don’t automatically assume longer days on market means the price is too high because that’s not always true and they know it. But then they also work with first-time home buyers, so they understand the disconnect going on. Buyers don’t often spot the good deals but agents do.

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