I read an article by Scott Thompson in the April 2010 edition of the National Association of Realtor’s Realtor magazine entitled “Short Sale Ethics: 6 Temptations to Avoid.” One of the recommendations was to avoid selling to flippers. “Unless the investor in a flip is prepared to add substantial value by fixing up the property, don’t participate in a flip. Short sale flips benefit only the investor who’s clipping off money that could go to an already bleeding lender.”
I do not understand why anyone would make such a recommendation.
I am an investor. I purchase a lot of properties. Many of them are flips. We are doing a lot more flips now than ever before because there is just so much “junk” on the market – so much that needs renovation.
One of the concerns in the NAR article is that “flip” means you are taking advantage of the lenders, the seller and the buyers. I don’t believe we take advantage of anyone.
First of all, most of our flips are not short sales. Most of our flips come from sellers who have allowed their properties to deteriorate to a point where they cannot be sold to the retail market. Why? As many reasons as there are sellers. Some people, amazingly, live that way. We have purchased homes from sellers who are living in them and we, literally, cannot walk all the way through because of trash and odor. Yes, I said they are living in them.
Some are from landlords who have not done any work but just let them deteriorate around tenants (slumlords, I call them). Now they’re done with the house and, again, can’t sell it to the open market. One purchase was from a landlord who literally lived across the street from his rental house and, when we were buying, he swore he had no idea how badly the tenants had destroyed his property. Interesting.
At any rate, no lender was harmed by us in any of these transactions.
The sellers? They’re thrilled that someone is taking the property off their hands. By definition, a flip is in pretty bad shape when we buy it. We have to be able to buy low enough that, even after $30,000, $40,000 even $50,000 out of our pocket for repairs, we can sell at a discount to move it and still make a profit. Not many retail buyers have this amount of cash to sink into a new purchase.
The buyers, the people we sell to? Again, we can’t be harming them or they wouldn’t buy, would they? They have plenty in today’s market to choose from. Why do they choose our houses? Because they’ve been renovated which means the buyer will have no major repair costs for 10-15 years. They typically get a house with new roof and HVAC, often times with new plumbing and electrical as well.
The buyers have an inspection so they know the condition when they buy. Add to that the fact that we sell well below market value because we want our houses sold, not for sale.
This, to me, means a big win for everyone. Why does the NAR warn against this? Realtors can make a ton of money working with investors, especially if they hook up and are really willing to work for an active investor.
I know, in the not too distant past, “investor” had a really bad stigma. I rarely used a realtor to buy or sell because realtors weren’t interested in the fact that I had to offer low to be able to do all the work and sell at some profit. (Why would I do this if I couldn’t make a profit?) And realtors wouldn’t show my houses because I’m an investor.
In the past 12 months, the market being what it is, realtors show our houses all the time and have brought buyers to almost every house we have sold in the past year. We always pay their commission. I would think the NAR would ENCOURAGE realtors to increase their business by hooking up with investors.
If we weren’t out there buying the junker properties, the “flips”, there would be even more deteriorating neighborhoods and house values would be even lower. We believe, absolutely, that we help the real estate market.