For some time the only “flippers” were investors who had a seemingly bottomless pot of money and who were gobbling up all the cheapest homes, with the idea of reselling them at a profit.
Any time you buy and sell a house—is called a flip. And we are seeing flips come back into our market. It’s either a fast flip or a slow flip, but it’s still a flip no matter how you look at it. In cases where an investor bought a property and sold it a short time later is termed in the media as “flipping”. That’s just doing business. It’s legal. And it happens every week.
So when you buy a house, and either fix it up or simply choose to resell it. If you’re buying and rehabbing houses, document all the work you do. Keep a file on what you’ve done and spent to make a case on how you raised the value so quickly. You should also document your work using before and after photos. Good records will help with everyone you deal with from other contractors to bankers to the IRS.
Typically we say that the “market value” of a home is what a willing buyer will pay a willing seller for a particular property, neither of them being under any pressure to buy or sell. Meaning that a home that is sold because a seller can no longer afford the payments, is a home that is selling under duress, and the settlement price may be lower than fair market value and therefore not reflect what the house is actually worth, similarly, if the buyer is under pressure to buy, let’s say for tax reasons, A house might sell for more than the so-called market value.
This week a friend asked about buying a mobile home. In Florida there are plenty of them and there are some very nice “parks” where the homes are parked. Some of them are owned by investors, and the “pads” where the homes are parked are rented out by the month or year. Others are either condo or co-op ownership where the residents manage the entire business, but still pay a monthly fee to a management group—which pays the bills, taxes, road maintenance and so on. If you are planning to involve yourself in one of these parks, do your homework and read the condo or co-op documents.
My friend is living in a park right now and her landlord has offered to sell her the unit she lives in. Recently he has been quite friendly and if she wants to purchase the home he will even offer to hold the mortgage. All of this sounds very good to her, and she was asking my opinion, I think hoping I would say it sounded good.
Not so fast. Mobile homes tend not to appreciate over time. And this one has seen quite a few calendars hung on its walls. This home is 30 years old, and the asking price? What the seller paid for the place.
Mortgages for mobile over 20 and certainly over 25 years tend to be pretty hard to get. Remember the only collateral the bank has is the right to foreclose on the building. And there is something about an older mobile home that scares bankers. The few loan companies that write mortgages for the older homes tend to need 20% down and charge a high rate. Today you can mortgage a house for 2.5% or thereabouts, maybe up to 3%. Mobile homes will likely be in the double digits.
And then there’s the “pad rent”. In this case $675/month. So looking at a project that would cost my friend at least $1,000 (if she has the landlord provide the financing) and possibly a good deal more if she has to use the sharks that finance mobiles. Not to mention the market value of the 30-year old trailer being significantly discounted from the original price—well I just can’t give her a thumbs up on this deal.
The amount of money she will have to pay for this mobile today could put her in a free-standing home that will not depreciate over time. Or, having done the math, she can show the landlord that his chance to sell the home 30 years after he purchased it for the same amount of money is probably no realistic, and so he needs to ask much less for the unit.