Bloomberg writer Prashant Gopal reported today that, “Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it. So at 27 he started a side gig flipping houses in the booming San Francisco Bay Area. He was hooked after making $300,000 on his first deal. That was two years ago. Now home sales are plunging. One property in Sunnyvale, near Apple Inc.’s headquarters, left Pan and his partners with a $400,000 loss. ‘I ate it so hard,’ he says.
“A new crop of flippers, inspired by HGTV reality shows, real estate meetup groups, and get-rich gurus, piled into the market in recent years as rapid price gains helped the last property crash fade from memory. Many newbie investors are encountering their first slowdown and facing losses from houses that take too long to sell. Meanwhile, they face steep payments on a kind of high-interest debt—known as ‘hard-money’ loans—that helped power the boom.
“‘Flipping only works in an appreciating market where homes move quickly,’ says Glen Weinberg, the Denver-based chief operating officer of Fairview Commercial Lending, which is tightening its standards for real estate investors. ‘Those factors are now in flux, and that’s what’s going to lead to the demise of a lot of flippers.'”
The Bloomberg article noted that, “About 6.5 percent of U.S. sales in the fourth quarter were flips, or homes sold within a year from when they last changed hands. That was the highest share in seasonally adjusted data going back to 2002, according to real estate data firm CoreLogic. (It’s even higher than during the last boom, when there were more newly built houses for buyers to choose from.)”
Today’s article added that, “Unlike the last decade’s housing crash, in which speculators bought simply to resell, many of today’s flippers sink money into fixing up properties. Their hard-money loans, which come from private investment groups, often have high interest rates and low down payments. The loans also are bigger because renovation costs are folded in.”
