Why Most Flips Suck
by Matt Ward
Flipping houses is a major income generating activity. Especially when the market is as hot as it is in Central Ohio. Renovated houses are a sought after commodity. It also often helps improve neighborhoods. In this article I am going to talk about Central Ohio home flipping and what to look out for if you are interested in putting in an offer on a house that has been flipped.
What is a Flipped House?
Simply put a house is flipped if it is bought at a discount, often in ‘distressed’ status and sold for more than the purchase price resulting in profit for the ‘flipper’. Some flips are improved, some are not.
The worst kinda of flipper in my opinion is the wholesale flipper. A wholesaler does is everything they can to buy properties as cheap as possible, often directly from the homeowner. No code of ethics exists and very few laws control the methods or actions of these wholesalers. They do not have real estate licenses and they avoid working with Realtors because they do not want to pay commissions. It is not unheard of for a wholesaler to take advantage of someone’s situation paying them far less than their home is worth under the guise of “helping them” during a time of financial duress.
The main problem I have with wholesale flippers is that they drive up prices. They primarily trade in low dollar properties. Often the houses you see on the market for $50,000 or less had a wholesaler buy them and then sell it to a private party who then put it on the market with additional markup. They do this without ever doing anything to improve the property. Often code violations accumulate or have accumlated and just get passed on to the buyer. Sometimes disclosed, sometimes not. They don’t have time for that if they are going to make a quick buck. Wholesalers are 100% in it for the money and do not give the slightest shit about the people they buy from or the neighborhoods they are driving up prices in.
Most commonly flippers do actually want to improve the property. They recognize the opportunity to make a house beautiful for a reasonable profit. This is a great thing if done knowledgeably and ethically. It creates actual affordable housing in many situations. When greed is the motive is just drives up the prices in a neighborhood.
The problem with flipping in this hot market is that the margins shrink. The distressed properties are in short supply forcing those interested to pony up more funds to buy them. I recently saw a building in the Franklinton area with no internal walls, electric or plumbing, a caving in roof and few windows sell for over $60,000. These types of purchases can result in the budgets for repairs for these flippers to be blown out of the water. This can result in cutting corners to try to make a profit. Here are some common places shitty flippers cut corners.
This one is SUPER common to see skipped. There will be beautiful new stainless steel appliances, new windows and floors and the furnace and AC from 25 years ago or older is left for the new buyer to deal with. That sucks. This could be $10,000 to replace if you hire a HVAC company. How can you tell how old they are? On the AC the serial number typically shows the year it was made on the third and fourth digits. If you cannot see the serial number? It’s old as fuck and will need replaced. The furnace typically has a posted service sticker.
What? The electric?? No way!! Yes, in the times I have had inspections done on flipped houses I have never seen the electric come back in fully updated fashion. Typically they don’t replace the electric panel. How can you tell? Well, new electric panel are pretty fucking shiny. Also, if you don’t see GFCI outlets in the bathroom and kitchen chances are they didn’t do shit to the electric. This is something a licensed electrician would recommend if they paid them to come update the electric. You can buy a ground tester for less than $10 on Amazon that plugs into the outlets and tests for grounds and polarity.
I don’t even know if it should be called a flip if a place has old windows. This is a major component of a modern energy efficient home. If you don’t see new windows, it’s a shitty flip. They don’t have to be brand new. As long as they are double pane windows in working order it’s fine, however, good flippers replace windows, shitty flippers mix and match older windows or just skip the windows altogether.
This one doesn’t get skipped often because most good flippers do this first. They want to make sure no leaks happen which could damage the rest of the work they are doing on the property. However, sometimes they leave old damaged boards and just put the new roof over it.
Hell, I have even been inside a flip that had put asphalt shingles OVER TOP of the original slate roof. Yeah, don’t do that. The roof is typically something that can be a little tricky to tell the age, but it isn’t tricky at all to tell if it is less than a year old. Ask if the roof comes with a warranty from the original company who put it on.
This one bugs the shit out of me. Shitty flooring is the biggest corner cutting method their is. I regularly see original hardwoods poking out from under some very low quality faux wood flooring that was hastily and not professionally installed. I do have an admission to make, I once dropped my phone on the floor of a flip with these type of floors and it left a legitimate gash in the flooring. MY FUCKING PHONE DID THAT WITHOUT BREAKING MY PHONE….. Cheap shit flooring is also used to cover up problems such as water damaged wood or termite damage.
I won’t even get started on shitty carpet. First off, fuck carpet, period. However, I am going to be more ok with average carpet in the upstairs or master bedroom area of the flip then I am $.74 a square foot clearance Ollie’s faux wood flooring. Ever wonder why they put down cardboard over the floor when showing the flipped house? So it doesn’t end up with scratches on it from all the foot traffic because it is fucking garbage.
In summary, high prices for distressed properties is shrinking the margins for flippers. That coupled with the fact that you can’t swing a dead cat without hitting someone that is new to flipping is making the quality of the flips on the market in Central Ohio and likely other places in the country much lower than ever before. Buyers beware. Look past the shiny appliances and dark faux floors. Look at the electric box, look at the AC and furnace, look at the windows. Is the work good? Your Realtor should be able to tell you if it’s a shitty flip. If they can’t choose another Realtor.