Flip or Flop

[usctrojancpa]

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. 

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?

Yeah, that's the episode that I saw.  I think they might have played it up for TV because 95% of realtors would have called it a 4th bedroom without getting the permit for it to be the 4th bedroom.  I see officies and dens being called and counted as bedrooms all the time, whether it be Irvine or elsewhere in OC.  The definitely of a bedroom is that the room has to have a closet, a door, and at least one window. 

 

[irvinehomeowner]

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.

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

You may want to watch again... he doesn't detail it out at the end but he usually mentions it when they are trying to figure out the listing price, he says something like:

"We bought it for $X, we spent $X to rehab it, there will $X for closing costs... so our break even is $X... let's list it for $X"

At that point, Christine usually tells Tarek he's crazy.

You're right that he may not mention other carrying costs but usually there is no cash-for-keys or lease buyout because every one I've seen has been vacant. In general, I think they are up front about their profit... even here in this thread, Tarek mentioned that he only made $9k on one of his flips.

Even if they only make $30k per flip, 10 flips is $300k... which is reasonable income.

 

[irvinehusky]

I don't watch these shows but is that his profit or profit to be further shared with his partner(s) and paying off the contractor(s)?

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.

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

You may want to watch again... he doesn't detail it out at the end but he usually mentions it when they are trying to figure out the listing price, he says something like:

"We bought it for $X, we spent $X to rehab it, there will $X for closing costs... so our break even is $X... let's list it for $X"

At that point, Christine usually tells Tarek he's crazy.

You're right that he may not mention other carrying costs but usually there is no cash-for-keys or lease buyout because every one I've seen has been vacant. In general, I think they are up front about their profit... even here in this thread, Tarek mentioned that he only made $9k on one of his flips.

Even if they only make $30k per flip, 10 flips is $300k... which is reasonable income.

 

[irvinehomeowner]

I don't watch these shows but is that his profit or profit to be further shared with his partner(s) and paying off the contractor(s)?

Only one episode had his investor/partner on it and he didn't say what the split was.

The contractor payoff is part of the rehab cost.

In some of the shows it looks like he's putting up his own money, even maxing out credit cards and borrowing from mom's equity line but somewhere in this thread Tarek says he has partners so not sure if he's just using his own money anymore.

 

[woodburyowner]

I don't watch these shows but is that his profit or profit to be further shared with his partner(s) and paying off the contractor(s)?

Only one episode had his investor/partner on it and he didn't say what the split was.

There was an episode last night that stated the payout to his investor partner was 8% in 90 days.

 

[irvinerealtor]

Believe what you want about "reality TV" but I put zero stock in it...

I once was assisting in selling a property that was prepped and staged, and got a call requesting if an HGTV show could film there. I believe the show was "My First Place" or something of the sorts. I got the permission of the owner and he accepted their offer.

The "first-time buyers" had actually already purchased a home 9 months previous to the shoot, and I watched as the person in charge (manager/director?) brainstormed out loud about the story line.  They called my 3 bedroom listing a 2-bedroom home to make it seem like a better comparable. They quoted a different price than we'd actually advertised at, and also brainstormed ideas on why they weren't going to choose this one. Nevermind that the choice had already been made nearly a year previous to that point...

YMMV.
-IR2

 

[qwerty]

from tarek on april 20 - "This year 2013 we have closed 14 year to date and currently own 17 either listed, under construction or in escrow.  We are on track to do 50 this year, of course I have hired my 5 best friends to work for me so the growth has been great.  Today that investor is a 50/50 business partner. We both have all our money invested together and have grown our fund to 4,000,000 cash so no hard money on the first $4,000,000 invested."

the tv show makes it seem as if this $4M fund does not exist or perhaps the shows are out of order from when the $4M didnt really exist.  although IR2 is probably right, without the drama of whether they are going to pay back the investor or pay back mama tarek the show could potentially be less interesting.

 

[NASCAR24]

Believe what you want about "reality TV" but I put zero stock in it...

I once was assisting in selling a property that was prepped and staged, and got a call requesting if an HGTV show could film there. I believe the show was "My First Place" or something of the sorts. I got the permission of the owner and he accepted their offer.

The "first-time buyers" had actually already purchased a home 9 months previous to the shoot, and I watched as the person in charge (manager/director?) brainstormed out loud about the story line.  They called my 3 bedroom listing a 2-bedroom home to make it seem like a better comparable. They quoted a different price than we'd actually advertised at, and also brainstormed ideas on why they weren't going to choose this one. Nevermind that the choice had already been made nearly a year previous to that point...

YMMV.
-IR2

Yup alot of programs on HGTV are "fake" or "recreated", such as House Hunters.  Google fake HGTV programs brings up a multitude of discussions on the topic.

 

[nosuchreality]

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. 

Actually, just a couple days ago he said they had 21 homes in process.

So unless he's really moved into the low end in the IE and maybe bad parts of LA, I'm guessing average money locked up must be $400K.  Which means the required bank roll is north of $8M.

 

[tarekfliporflop]

Hi everyone, we got picked up yesterday for season 2!! Yes episodes are out of order and we have quadrupled the business since we started filming. I split all net profits with my partner who you have seen on the show.  We are using hard money financing because of the amount of properties we have going. I am buying 6 more houses in the next 10 days and I think I have 7 I'm selling in escrow closing in the next week or two.  Read my first post to get a better idea of how I got to where I got.  Again, I am just a guy that had a dream of flipping houses and somehow ended up on tv, probably because of the hot wife!! Just kidding!!

 

[qwerty]

Again, I am just a guy that had a dream of flipping houses and somehow ended up on tv, probably because of the hot wife!! Just kidding!!

congrats on season 2, we dvr the two episodes every week. we really enjoy watching. no offense but part of the reason i watch is the hot wife 

 

[NASCAR24]

Congrats Tarek!  I also dvr and watch every episode, especially when I saw your mom on the Whittier episode and remembered she was my French teacher back in high school!

 

[irvinehomeowner]

Saw the Ontario home episode last night (it's funny because the info for the episode said "Ontario, Canada") and thought they over improved a bit.

This was the first episode I remember where the appraisal was an issue so they had to lower the sales price by $10k. I would have split the difference and asked them to pony up $5k more.

I think the episodes with the Dave contractor are the older ones and the ones with Israel are the newer ones (Tarek can confirm).

I like the show because I'm addicted to the "before and after"... that's also why I like Property Brothers and Love It or List It because I like to see how the home turns out. My only issues are those shows are an hour long... I would prefer a half hour show that does maybe 2 or 3 home remodels.

 

[nosuchreality]

Anybody catch where the house in the episode last week was at.  It was obviously one of the first ones.  I think they ended up selling for $405K.  But I don't recall location.  Could have been any of the older OC communities.  I think HB by the looks of it.

 

[tarekfliporflop]

Hey everyone! Season 2 airs Tuesday April 8th.  We ended up flipping 47 homes last year.  Today we currently own 43 homes and anticipate flipping 80 to 100 homes in 2014.  Growth has been great and we are very appreciative for everything we have and all the support we get from everyone.  Season 2 is WAY better than 1, I hope you enjoy.

Tarek

 

[eyephone]

So where are the properties located?

 

[tarekfliporflop]

La,sd,rvsd,la and sb counties. Only a few in Nevada.

 

[eyephone]

La,sd,rvsd,la and sb counties. Only a few in Nevada.

Sounds good.

 

[usctrojancpa]

La,sd,rvsd,la and sb counties. Only a few in Nevada.

How are you guys acquiring your homes?  Short sales?  REOs?  Foreclosure auctions?  It seems like the foreclosure auctions are drying up due to the improving economy and higher home prices.

 

[jbot747]

Does nobody else see a pattern here? People flipping houses again, throwing some marble counter tops in, and trying to get a 20-30% return within 90 days.... Investors are going to get screwed if they are holding too much inventory when the market corrects again, as it invariably will when interest rates rise, or when there aren't enough qualified, or naive buyers to buy at today's prices.

Just because you get a low fixed interest rate, doesn't mean your house price won't plunge when rates go up, and people can't swing the mortgage.