Flip or Flop

NEW -> Contingent Buyer Assistance Program
On the Whittier house, I think their break-even was around $650k-700k, so even though they had to drop it $100k from their original list price of $849k (which they did mention on the show at the end), they still made money (and be able to pay back Mommy El Moussa).

The blueprint for them is buying at least $100k below comps, using about $50k for rehab and pimping it out to sell above comps to cover an extra costs (like carrying costs and unforeseen remediation).

These two are both recent... so I'm wondering if they are bankrolling on their own now that they've accumulated close to $1mil.

The low inventory is probably hurting them, but it sounds like they have connections with banks to find REOs or shadow inventory that hasn't hit the market.
 
irvinehomeowner said:
The low inventory is probably hurting them, but it sounds like they have connections with banks to find REOs or shadow inventory that hasn't hit the market.
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They bought it off an MLS listing in July as a REO. The market would have added 5% or so, maybe more in the higher end properties.  You can really see the bubble mentality for sellers forming up in the Redfin statistics graphs for Whittier with the wild jump in listing prices versus selling prices. It similar or worse for many OC cities. They took solid calculated risk and played it well. 

They also are using all of Orange county and neighboring LA/SB suburban as their target zone.  It's a big zone
 
I haven't seen last night's two episodes, started watching the first but had to switch over to The Voice.

I'll try to catch up tonight on the DVR.
 
Caught the two episodes last night. 

They did very well on the Ontario house, but again, the buyer frenzy starting in the second half of last year helped them out.  Ontario home

The Bellflower house has a little more to the story.  They did mention an additional 45 days, it was another 6 month hold.  They seem to keep repeating the same mistake of over pricing the homes and then letting the market come to them.  It'll be interesting what happens if the market cools.  It took them 3 months to sell it, in Q4, 2012.

Bellflower house
 
the show makes it seem like they dont due their due diligence some times.  there has been several episodes where issues come up that seem like something that should have easily been caught - maybe its edited that way to make it more dramatic.
 
Finally saw the Ontario house episode... hard to believe they sold it for so much... bubble in the IE? Funny how the pool turned green on Open House day.

It's interesting that they said they weren't able to buy homes on auction as easily so started going after shorts.

Right now, I'm wondering if they are still able to find flips with such short inventory.

 
irvinehomeowner said:
Finally saw the Ontario house episode... hard to believe they sold it for so much... bubble in the IE? Funny how the pool turned green on Open House day.

It's interesting that they said they weren't able to buy homes on auction as easily so started going after shorts.

Right now, I'm wondering if they are still able to find flips with such short inventory.
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Yup, they are sending out email blasts to agents to find properties (see attachment with a screenprint from my email).  The inventory shortage has to be making it difficult for them find many properties out there.
 

Attachments

Hi Everyone!!!! I hope you guys are enjoying the show.  The market is way more competitive today but my team and I are working non stop to buy properties.  Today we have 21 homes we are flipping either listed for sale, under rehab or in escrow.  I hope is to flip 55+ homes this year.  The market is hot and I am selling my homes for above asking but I am having issues getting them appraised.  I am trying to find the sweet spot of doing enough work for the least amount of money that will cause me to sell at the highest price and not have appraisal issues.  I will keep you all posted.  I sold the house in whittier with a view for $750,000, the house in Cypress for $675,000 and the house in Fullerton for $738,000.  Don't forget to watch the show!!  Thanks everyone
 
tarekfliporflop said:
Hi Everyone!!!! I hope you guys are enjoying the show.  The market is way more competitive today but my team and I are working non stop to buy properties.  Today we have 21 homes we are flipping either listed for sale, under rehab or in escrow.  I hope is to flip 55+ homes this year.  The market is hot and I am selling my homes for above asking but I am having issues getting them appraised.  I am trying to find the sweet spot of doing enough work for the least amount of money that will cause me to sell at the highest price and not have appraisal issues.  I will keep you all posted.  I sold the house in whittier with a view for $750,000, the house in Cypress for $675,000 and the house in Fullerton for $738,000.  Don't forget to watch the show!!  Thanks everyone
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With the market being as strong as it is, aren't you getting multiple offers on most of your flips with many strong buyers (?  If so, why not counter back for best and final and have the potential buyers waive appraisal contingencies.  Removing the appraisal contingency is the only way that my buyers have a chance in buying a home that has multiple offers.
 
I think you can waive in all-cash transactions, but if buyers are financing, the bank will have something to say about the appraisals.

I think banks are being more cautious during this bubble run-up.
 
irvinehomeowner said:
I think you can waive in all-cash transactions, but if buyers are financing, the bank will have something to say about the appraisals.

I think banks are being more cautious during this bubble run-up.
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Yea, my lender told me that he has been having issues closing on a few new development home loans because the builder is pricing higher than the eventual appraisal.  Definitely appears to be a measure to avoid underwater loans again, once this bubble bursts.
 
My Ridiculously Long That's Wat She Said Yellowneck USERName said:
Yea, my lender told me that he has been having issues closing on a few new development home loans because the builder is pricing higher than the eventual appraisal.  Definitely appears to be a measure to avoid underwater loans again, once this bubble bursts.
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That's one I haven't heard before. I thought new homes automatically get appraised at builder's listing price because it's new.
 
Just finished watching an episode where they sold a Yorba Linda house for $510k where they said they made about $80k.  Their profit doesn't seem to include county transfer tax, possible cash-for-keys or lease buyout, carrying costs (utilities, property taxes, HOA, etc), closing costs, and agent commissions.  That profit was probably close to $60k if they only paid the buyer's agent commission, still not bad for a few months work. 
 
USCTrojanCPA said:
Just finished watching an episode where they sold a Yorba Linda house for $510k where they said they made about $80k.  Their profit doesn't seem to include county transfer tax, possible cash-for-keys or lease buyout, carrying costs (utilities, property taxes, HOA, etc), closing costs, and agent commissions.  That profit was probably close to $60k if they only paid the buyer's agent commission, still not bad for a few months work.
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Do they also have to pay a capital gains tax?
 
Tarek always mentions closing costs when calculating profit which I assume includes agent commissions (from the episodes I've seen, he uses a rough percentage to estimate that).

As for capital gains tax, not sure how profit on non-occupant real estate works but I think it would be just considered income.
 
My Ridiculously Long That's Wat She Said Yellowneck USERName said:
USCTrojanCPA said:
Just finished watching an episode where they sold a Yorba Linda house for $510k where they said they made about $80k.  Their profit doesn't seem to include county transfer tax, possible cash-for-keys or lease buyout, carrying costs (utilities, property taxes, HOA, etc), closing costs, and agent commissions.  That profit was probably close to $60k if they only paid the buyer's agent commission, still not bad for a few months work.
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Do they also have to pay a capital gains tax?
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It's treated as ordinary income and taxed at their marginal tax rate since the hold time was under 1 year PLUS they get to pay 3.8% for the Obama Healthcare Tax on top of that (starting in 2013).
 
USCTrojanCPA said:
Just finished watching an episode where they sold a Yorba Linda house for $510k where they said they made about $80k.  Their profit doesn't seem to include county transfer tax, possible cash-for-keys or lease buyout, carrying costs (utilities, property taxes, HOA, etc), closing costs, and agent commissions.  That profit was probably close to $60k if they only paid the buyer's agent commission, still not bad for a few months work. 
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I think I watched the same one.  Was this the one with the non permitted bedroom?  I was actually curious about what the real issue was because I see similar things done in Irvine listings all the time.  The issue they state was that an non-permitted bedroom could not count as a bedroom in the listing.  So instead of marketing the house as a 4 bdrm, it would have to be a 3 bdrm house.  The bedroom in question was a loft that had drywall put in to enclose the room.

Doesn't this happen ALL the time with Irvine listings?  Dens and lofts are always listed as the 4th bedroom in the bedroom count and I've never seen a problem.  I've also seen people put a door in front of a den and then call it a bedroom too.  How does this scenario differ?
 
irvinehomeowner said:
Tarek always mentions closing costs when calculating profit which I assume includes agent commissions (from the episodes I've seen, he uses a rough percentage to estimate that).

As for capital gains tax, not sure how profit on non-occupant real estate works but I think it would be just considered income.
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I don't know how they handled it on previous shows since last night's one was the first one I saw, but it was obvious the profit that they showed on TV was not reduced by the costs that I meantioned in my previous post.  None of the flipper shows that I've seen ever include the costs that I highlighted, hopefully the wanna-be flippers realize it too.  I guess for TV, an $80k profit is sexier than a $50k profit.  haha
 
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