Coming from someone who has seen people do this before, it’s a very risky game and if overplayed can lead put a serious cramp on the real estate market’s growth. The problem with flipping property is that the unless the person flipping the property has a large amount of income put aside for investing, they will need money from the bank to purchase the property. Considering the bank will see this as an investment or “business” the bank will most likely charge a higher interest rate on the loan then they would for a mortgage. This might tempt people to refinance their home in order to purchase their investment since the interest rate on their house is most likely lower. For example, I refinance my home by extending my mortgage for another 10 years at a 6% interest rate rather than taking out a loan at 12% to buy a property I want to flip. Makes sense right? But what if the property I plan to flip doesn’t sell in this slow market? Now I am left with additional taxes to pay, an extended mortgage, and another house I have to maintain. Flipping properties can be profitable, but people need to remember it is a gamble. Would you refinance your home or take a loan in order to hit up a poker game? I hope not!
From an economic standpoint it seems like a good opportunity to take advantage of and will help the economy in the long run. Bianca makes a good point that it is a very risky game though I find it reassuring to know that their are stricter requirements preventing 'flippers' from acquiring massive amounts of debt in the form of mortgages they can't afford to pay if they fail to sell a house.
My problem with this new market is that it perpetuates the attitude that has come to surround homeownership. People have become flippant about owning a home. Even if these 'flippers' are professionals and put a lot of serious work into what they do, the idea that one can buy and quickly resell a house for profit adds to this nonchalant view of homeownership.
I don't think that what they are doing in necessarily a bad thing. They are buying foreclosed houses that need to be bought. Since they are bidding against each other, I would think that they are generating a hire price for the original borrower to pay back the bank more. They are then fixing the properties up, so potential buyers can not only purchase the house, but see what they are purchasing, which they would not be able to do at a foreclosure auction. Most of them are using their own money, so if something goes wrong, nobody else is affected besides the flipper. I also don't think that they are try to take advantage of anybody or take pleasure in their misfortune. They said themselves that they hope the market turns around and then they would switch their focus. Also, I found it funny that the article refer to flipping houses as gambling, and one of the men's last name is Gamble. haha
I agree with LizK in saying that this is not necessarily a bad thing. Those who foreclosed their house need someone to buy it, and that is exactly what these flippers are doing. I think it is dangerous as well, but that is the flippers choice to get involved in the game.
I feel that while the people who flip are taking a risk, no matter whether they profit or loose money the practice does little to ameliorate the foreclosure problem and quite arguably makes it worse.
As mentioned in the original post, I would also feel some sort of discomfort in knowing that my benefit was coming at someone else's loss.
I can see the good in this, decreasing number of foreclosed homes and helping increase value, but it also bothers me when people take advantage of the system for their own gains. If it works, it's selfish, if not, I don't pity them much because they knew they were taking a risk.
The thing with this is, the house is foreclosed on whether or not people bid on and buy it, and by the time it goes to auction the owner has usually long been evicted. So being foreclosed on sucks, and it'd be good if banks worked harder to restructure mortgages instead of foreclosing, but the bidders don't do much to hurt the owners.
As Liz pointed out, more competition should drive up prices, and that cash goes back to the owner, via the banks. I see the work these flippers are doing as productive arbitrage in the housing market.
There's also a pretty big positive effect by getting residents into foreclosed properties quicker for the properties themselves and also he neighborhood. And for local tax revenues.
I dont have a problem with it at all. They are buying houses that would remain unkept for a low sum, fixing them up a little, and reselling them quickly for a profit. That means that they are driving the value of surounding properties up as well. I didnt read anything about them causing the foreclosures on the homes they are purchasing, so I see it as a good thing. It gets these properties off the banks' balance sheets, and off the markets.
I think that it can be a good thing if people are improving the condition and value of the properties; like Richard said, it also raises the value of neighboring properties. However, I think the problem is that flipping houses becomes more and more profitable, and people don't always know when to stop, which is when people get into trouble with refinancing existing problems or having their money tied up in several unsellable properties at once.
Coming from someone who has seen people do this before, it’s a very risky game and if overplayed can lead put a serious cramp on the real estate market’s growth. The problem with flipping property is that the unless the person flipping the property has a large amount of income put aside for investing, they will need money from the bank to purchase the property. Considering the bank will see this as an investment or “business” the bank will most likely charge a higher interest rate on the loan then they would for a mortgage. This might tempt people to refinance their home in order to purchase their investment since the interest rate on their house is most likely lower. For example, I refinance my home by extending my mortgage for another 10 years at a 6% interest rate rather than taking out a loan at 12% to buy a property I want to flip. Makes sense right? But what if the property I plan to flip doesn’t sell in this slow market? Now I am left with additional taxes to pay, an extended mortgage, and another house I have to maintain. Flipping properties can be profitable, but people need to remember it is a gamble. Would you refinance your home or take a loan in order to hit up a poker game? I hope not!
ReplyDeleteFrom an economic standpoint it seems like a good opportunity to take advantage of and will help the economy in the long run. Bianca makes a good point that it is a very risky game though I find it reassuring to know that their are stricter requirements preventing 'flippers' from acquiring massive amounts of debt in the form of mortgages they can't afford to pay if they fail to sell a house.
ReplyDeleteMy problem with this new market is that it perpetuates the attitude that has come to surround homeownership. People have become flippant about owning a home. Even if these 'flippers' are professionals and put a lot of serious work into what they do, the idea that one can buy and quickly resell a house for profit adds to this nonchalant view of homeownership.
I don't think that what they are doing in necessarily a bad thing. They are buying foreclosed houses that need to be bought. Since they are bidding against each other, I would think that they are generating a hire price for the original borrower to pay back the bank more. They are then fixing the properties up, so potential buyers can not only purchase the house, but see what they are purchasing, which they would not be able to do at a foreclosure auction. Most of them are using their own money, so if something goes wrong, nobody else is affected besides the flipper. I also don't think that they are try to take advantage of anybody or take pleasure in their misfortune. They said themselves that they hope the market turns around and then they would switch their focus.
ReplyDeleteAlso, I found it funny that the article refer to flipping houses as gambling, and one of the men's last name is Gamble. haha
I agree with LizK in saying that this is not necessarily a bad thing. Those who foreclosed their house need someone to buy it, and that is exactly what these flippers are doing. I think it is dangerous as well, but that is the flippers choice to get involved in the game.
ReplyDeleteI feel that while the people who flip are taking a risk, no matter whether they profit or loose money the practice does little to ameliorate the foreclosure problem and quite arguably makes it worse.
ReplyDeleteAs mentioned in the original post, I would also feel some sort of discomfort in knowing that my benefit was coming at someone else's loss.
I can see the good in this, decreasing number of foreclosed homes and helping increase value, but it also bothers me when people take advantage of the system for their own gains. If it works, it's selfish, if not, I don't pity them much because they knew they were taking a risk.
ReplyDeleteThe thing with this is, the house is foreclosed on whether or not people bid on and buy it, and by the time it goes to auction the owner has usually long been evicted. So being foreclosed on sucks, and it'd be good if banks worked harder to restructure mortgages instead of foreclosing, but the bidders don't do much to hurt the owners.
ReplyDeleteAs Liz pointed out, more competition should drive up prices, and that cash goes back to the owner, via the banks. I see the work these flippers are doing as productive arbitrage in the housing market.
There's also a pretty big positive effect by getting residents into foreclosed properties quicker for the properties themselves and also he neighborhood. And for local tax revenues.
I dont have a problem with it at all. They are buying houses that would remain unkept for a low sum, fixing them up a little, and reselling them quickly for a profit. That means that they are driving the value of surounding properties up as well. I didnt read anything about them causing the foreclosures on the homes they are purchasing, so I see it as a good thing. It gets these properties off the banks' balance sheets, and off the markets.
ReplyDeleteI think that it can be a good thing if people are improving the condition and value of the properties; like Richard said, it also raises the value of neighboring properties. However, I think the problem is that flipping houses becomes more and more profitable, and people don't always know when to stop, which is when people get into trouble with refinancing existing problems or having their money tied up in several unsellable properties at once.
ReplyDelete