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I’m not big on watching the so-called “House Flipping” television shows. Why? Because they’re goofy. And downright dangerous. It’s like learning to perform surgery by watching Grey’s Anatomy. Not good.
While channel surfing a couple of weeks ago, I ran across a show called Flipping Vegas. It’s about house flipping and, since I moved to Las Vegas recently, I decided to watch it.
It starts with the star (let’s just call him “Mr. Investor”) saying dramatically:
Where others saw disaster, I saw opportunity.
My real estate agents scour the city for incredible deals.
Right at the start of this episode, he announces proudly that he’s made a $225,000 ALL CASH offer on a house in a Guard-Gated Community, sight unseen. He plans to fix it up and get a quick profit by (what else?) flipping the house.
Apparently, his agent didn’t have to scour too far to find this lollapalooza of a deal. In fact, she didn’t even have to go look at the house in person before she tendered Mr. Investor’s all-cash offer to the bank.
"There's been some water damage. How bad can it be?"
Just before they open the front door the agent says, “There’s been some water damage, but it’s been remediated. I mean, how bad can it be?”
Sight unseen by either the investor or the agent. How bad can it be? You gotta be kidding me.
Now the agent opens the front door, and we can see immediately that it’s a total disaster – all the walls are gone, the ceilings are gone, and we haven’t even seen the kitchen or the upstairs yet.
Then the agent looks at a brochure and says, “All the pictures look perfect.” Honest. She really said this. So she bought this property for her client based upon the pictures. You gotta be kidding me.
Here’s the breakdown at the start of the show:
| Purchase Price: | $225,000 |
| Cost of Rehab: | $20,000 |
| Sale Price: | $305,000 |
| Projected Profit: | $60,000 |
Woot. A Sixty-Thousand-Dollar Profit! Oops. They forgot to add in the $18,000 Agents’ Commission. Oh well, minor detail.
Next we find out the flooding went six inches high up the wall studs on the bottom floor, and up the stairs we go to find the source of the flood – a bathroom. Whether someone intentionally left the water running or what, we never find out. But it is the source of Black Mold, which is a super-hazard.
The bathroom has to be gutted and treated, and most of the kitchen (including all the cabinets) has to be gutted and treated for black mold. It’s a true mess.
They replaced 24,000 square feet of drywall, they had to gut the bathroom and the kitchen, pay a hazard squad to remove and treat the mold-infested drywall, cabinets, and flooring.
So I find it hard to believe that with the extensive damage and serious hazardous mold problem the rehab cost only $45,000 for this 3,900+ square foot house.
Miraculously, at the end of program they claim a profit.
With smoke and mirrors, they claim the “added value” of $6,000 for the bathroom that had to be gutted and “added value” of $12,000 for the new kitchen.
HUH? They had to gut the kitchen and bathroom to get rid of all the hazardous mold. How the heck does this become “added value”?
So now the new and improved asking price is: $349,000.
Oh, and with all this “added value” (Hey, look folks, here’s a house that has both a kitchen and a bathroom!) they now claim they got not one, but two full-price offers for the new and improved asking price of $349,000.
And that’s a profit of $79,900. Really!
Internet discussions about this Flood House episode show the property address and say this house actually sold on August 9, 2011 for $275,000.
How do the numbers really add up?
| Purchase Price: | $225,000 |
| Cost of Rehab: | $45,000 |
| 6% Commission: | $16,500 |
| Total Cost: | $286,500 |
| Sale Price: | $275,000 |
| Projected Profit: | $60,000 |
| Actual Profit: | -$11,500 |
If you’d like to see what black mold looks like and why you should never take advice from these “house flipping” reality shows, you can watch this episode of Flipping Vegas online: Flood House.
If you want to learn how to safely flip houses–the right way, here are a couple of “house flipping” how-to articles you should read:
House Flipping – No Cash or Credit Needed!
House Flipping & The Art of the “Blue Pen Flip”
As always, I’m looking forward to your comments…
I swear some full time investors in my reia said the exact same thing. And they always advise newbies to stay away from those shows because they offer a false reality
Now you can point them to this article
JP
The major problem with this and other reality shows is that Real Estate Investing is being glorified as a quick and easy way to make a killing. I have been investing in Real Estate and in Construction for almost four decades and a word of advice is “nothing seems like it is”. Cost over-runs will hit you every time if you do your own re-habs. Unless you know your true cost for kitchens, baths, HVAC and remediation, assign your contract to a Pro and be happy with small profit. DJB
Thanks for the contribution, Dave. I bet you never bought a property by relying on pictures in a brochure…
And you’re right about assigning the contract to a pro – it’s absolutely the easiest and fastest way for a beginner to get started in the real estate biz…
JP
Awesome Blog!!! I’m an Assoicate Broker, REALTOR in the Lutherville Timonium, MD area. I wish every Investor and every real estate buyer out there today could read this article. Now these facts are worth the media mentioning in the news. Does the truth ever make the news? I just finished attending a Rich Dad Education “Guide To Real Estate Investing” Seminar. Yes they got me for a $199 but, hey…at least I got to take someone along for FREE. We suffered through an entire weekend of FLUFF (that’s putting it mildly). For some reason I felt I just had to attend to at least hear what they had to offer. Of course I knew in the end right upfront to expect the urgent must do sales pitch if one wants to move forward in Real Estate Investing. My suggestion: READ the “how-to articles” in this Blog!
Glad you enjoyed the article!
JP
Whoa! I.m in a program for buying by pictures low end stuff AND ON IT GOES.
Agree with the article. The show has to create a wow factor to get folks to watch which is why they would pick a house like this.
On a side note, making an offer sight unseen is different than closing escrow sight unseen. I’ve done the former based on the MLS pictures but our standard contract has an inspection clause which allows me an out. No investor in their right mind would close sight unseen. But again, that makes the show more exciting (although I’m quite sure it didn’t actually happen that way).
Appreciate the feedback, Dave. Most of the people who watch these shows don’t know anything about investing in real estate, which is really why I take issue with the stuff they’re showing. Newbies need to know this is *not* they way to do it, right?
JP
You pretty much said what i could not effectively communicate. +1
Good article!
I like a lot of those shows and they are one of the reasons that I got interested in investing in fix and flip real estate. However I always watched them taking it all with a gain of salt.
The one I liked the most was Property Ladder because they had like half the people on it totally bomb by overestimating the sale price, going well over the timeframe they had, and going way over budget for the rehab.
I’m sure that there was still a lot of stuff done just for TV but at least they didn’t pretend like every deal was a walk off home run.
By the way bidding sight unseen is a fine strategy as long as you assume the place is a disaster. I just bought a place that turned out to be a carpet and paint with a new snazzy kitchen that will cost me around $25K but put in my bids assuming it needed about $48K of work! (I did view the place prior to closing of course!) So if you can get a deal like that it can work pretty well!
Hi Shaun,
Glad you enjoyed the article! If your bid is “binding” like it was at the S&L Loan Crisis auctions and in other situations, where it costs you significant money to cancel your bid, it’s not a good idea to bid site unseen.
I attended a lot of those S&L auctions, bought a lot of stuff, and saw too many would-be investors bidding based on the photos in the brochure. I heard two guys agree to bid X amount on a particular house that “looked” good. I had been inside the house and knew the whole thing was fire-gutted. So, more often than not, I do not think “sight unseen” is a good idea.
I’m glad it worked out for you…
JP
Frankly I think that’s aobsleutly good stuff.
Great article!
Have to say, though, that I have bought 10 properties sight-unseen in the past 2 years. Nope, never had anyone look at them until after closing. It’s not for the faint-of-heart and I don’t recommend it. But I don’t regret it.
I lived out of state, knew the area, bought for location and paid 10k or less for each. And I knew that the prices were low because of mortgage fraud in that particular neighborhood and the banks just wanting to wash their hands of them.
The properties are rented out and cash flow nicely. But that neighborhood is/was a unique situation and I would never recommend this strategy to others
Ya learn something new everyday. It’s true I guess!
My thoughts exactly! Except you were too kind in your assessment of the Vegas Show wow I really have never seen such an obviuosly misleading and staged “reality” show.
All the Flipping shows are bogus but this one is really really bad. Wait till you see the one with the twin brothers he partners with. You may lose your lunch.
We have been doing deals here in Richmond Va for many years and at least I do get a laugh at these shows but at the same time feel bad for newbies that watch this stuff and then jump in and lose their backsides thinking they are going to get rich quick!
Been following you since you started Creonline and have learned much from your website and really appreciate the information you put out there for us!
Hi Ron,
Yes, I saw the twin brothers episode. Whaaaat???
Good to see you stopping by after all these years…
JP
I love Fix & Flip Shows. I also love romantic comedies. I have done close to a hundred flips. But the flippers on tv are able to buy way too high and spend way too much to get the work done and still make a big profit. They never have a cost of money or a lost opportunity cost on their own money. They use a Realtor on every deal but never have a commission, closing costs, buyers closing costs or any repairs
listed by the appraisor or property inspector.
The one thing that really is “realistic” is what I call the Lt. Columbo Factor; one more thing. Even the best rehabbers miss something or open up a wall and find another problem. Good rehabers have a contingency budget. Another thing that is true is that wonderful feeling you get when you rework the space. Opening up walls, moving them, eliminating wasted space hallways, etc., and making a finished product that works in this market.
I truely love these shows but not as educational. I shudder to think what would happen if you tried to learn from them. Or you could watch a sit-com. Better yet, shut the idiot box off and go do another Fix & Flip. Just make sure to do ALL the math.
I agree completely. I watched some of that new one with the guy from survivor “Flipped Out” last night, and it was so rediculous I couldn’t watch anymore. These guys didn’t get an inspection, had to replace sewege lines for hundreds of feet, didnt call an exterminator dispite finding rats, they got mad and hammered a granite countertop into a hundred pieces (in the name of good tv) and yet spent next to nothing and made $38,000 on a house that would have a hard time selling in most markets. Its just reality television stretching into another realm for a couple months.