Sunday, March 03, 2019
Truth about Florida Real Estate Flippers
Truth about Florida’s Real Estate Flippers is something most home buyer are not aware of. Home Buyers love pretty houses…buyers like new stuff. Buyers like to see updated homes. But is the “new camouflage” really worth it? Are these renovations hiding more secrets than home buyers suspect?…you better believe it!. True stories below…
House Flipping is a quick-profit strategy in which an investor purchases real estate under market value and improves the property in order to sell at a higher price. A flip house is defined as a home that is bought and sold within 12 months. How fast a house will sell depends upon the curb appeal of the property. Statistics show that “move-in-ready” homes sell 12% faster.
Orlando has a very healthy real estate market, which is ripe for anyone wanting to flip a house, so this can be a lucrative profit strategy. Flippers just buy a house that is ugly, or outdated or in poor condition and fix up the cosmetics and make it appear good. It may not be good, but it just needs to appear that way. Just slap some cosmetic fixes on troubled properties and ignore pulling permits.
The typical flipper does not care if something is not done correctly…they only care if it superficially looks good. Their goal is to make a quick sale with a bigger profit. Close the deal quick and buy another house to do it over again. The main focus is making as much money as they can in the shortest amount of time. Flippers don’t care if their renovation falls apart in a month or the termites start appearing again. Fast money is the name of the game…
It is a fact that in Florida almost all renovations need permits to be pulled and be inspected by the city. A permit is an official approval issued by the local government that ensures that the rehab complies with local standards of construction.
You cannot just put on a new roof without a permit. You also cannot open walls, add on, close in rooms, raise ceilings or switch out the plumbing without pulling a permit and letting the city come and inspect. The last thing a “flipper” wants is to have the city inspector involved. If they get a permit for one thing, the city will have to come to the property to finalize it. That’s when they will come to the house to inspect and notice all the other improvements that permits were not pulled for. They will now require other permits to be pulled…which is exactly what the seller wants to avoid.
Flippers typically do not pull permits because they do not want to take the time, spend the money, or most importantly…they do not want any city official scrutinizing their work. Chances are it will not pass inspections and to a flipper “time is money”.
Typically, if the roof has a leak, the flipper will fix the leak and use “Kilz” to cover up the stains on the ceiling. To make matters worse, the flipper or their agent will say the roof has never leaked. Or better yet, they will say nothing at all…instead they will write across the sellers disclosure….”SELLER KNOWS NOTHING, THEY NEVER LIVED THERE.” So much for the state requirements for disclosing material deficiencies…that is non-existent with a flipper…and some listing agents also mistakenly believe that “house flippers” do not need to disclose anything because they never lived there.
So much for that baloney. I own several rental properties that I have never lived in. Yet I pay for the repairs, so I know which roof is leaking, which septic tank needs to be pumped, and which toilet is loose. In other words every owner knows something…especially if they are tearing into walls, and buying material to renovate. Don’t buy into the bogus story that the seller knows nothing…
Many years ago, I was an occasional house flipper. It did not last long because I was not comfortable fixing only the cosmetics, I wanted everything to be perfect. This was contrary to making a steady profit.
But here is what I learned: Every house has more problems than you can spot at first look. One repair usually leads to the discovery of another problem, and more repairs are always needed.
It goes like this…you fix some plumbing in the wall and find electrical wires that are exposed…you then go to fix the wires and find out that the outlets that it goes to are not working…so you go to fix that and find out the house has termites. Or you go to paint the porch and fall through the rotten boards. Now you have a dilemma…do you just putty in the rotten stuff and cover it up with a fresh coat of paint or do you remove the whole porch and put on a new one??
If you are the homeowner living in the home, you will fix it correctly. However, if you are a professional “house flipper” you will putty it up, paint it and cheap out.
I actually have two recent stories which are making me rethink the decision of even showing flipper properties. The problem is that many buyers ask to see those properties because as I said at the beginning…buyers want pretty upgraded homes. Once they see it, it becomes an emotional purchase, not a business decision. They see it, they like it and want to buy it.
Flipper house #1: Owner agent is also the flipper, who hired others to fix up the house. My initial thought was that the owner did more renovations then most flippers, so at first appearance it did look good. The buyer goes to contract. As part of the home purchase I requested (in the contract) all receipts, permits and warranties for the home buyer. Part of that is already in the small print in the contract, but I additionally requested it so that the seller would be aware that we really do want it and not overlook it. Seller was not happy that I wanted all the receipts…
We take the next step and do home inspections.
The house did have a new roof that supposedly had a permit that was pulled, although the owner/agent did not provide me with one. I say “supposedly” because I could not find it in the permitting for the city and the county never responded to my inquiry. OK, let’s assume that they did pull a permit and it was done properly. Meanwhile during the home painting on the exterior, someone spilled a can of white paint on the roof which is easy to see from the ground. Lets face it, to try to remove it would result in also removing some roof granules which are important to the integrity of the shingles. A dark new roof with spilled white paint…not a good look.
The property had also been re-plumbed…with no permit pulled. There was still a leak.
The bathrooms looked like they were newly remodeled, but on closer inspection the shower and tub were not new…only painted with epoxy paint which made it appear new.
The kitchen while new, was not properly attached to the wall and the new appliances were bottom of the line in quality. The sliding patio doors were hard to open and needed new rollers.
Interior paint appeared OK until you noticed that all the windows had peeling paint. Apparently, the painter painted white latex paint over oil based dark windows…which does not stick. The front door jambs had rotten wood that was simply painted over.
The new screening had spline coming loose in several places. Deck needed to be repainted as the painter did a splotchy job.
So the buyer requested that the seller fix the things that the agent/owner/flipper stated were “new”…they only asked for the items that the seller/agent had paid others to fix. The response from the agent/owner/flipper was NO! A shocking response since I already had some receipts that showed the seller/owner had already paid for these improvements. Why not simply get the workers/handy persons back to the house to finish the job they were already paid to do?
Buyers were already losing enthusiasm for the purchase when they got the survey report. The survey showed that 3 neighbors were encroaching on their property…one with a pergola that was 5 feet inside the new buyers property line. Flippers usually do not do surveys, so they do not consider encroachments important. The buyers did not want to start their life in Florida by alienating the 3 neighbors by forcing them to move fencing off buyers property.
Buyers cancelled the contract. Now, you may think that all the deficiencies were minor. True, but buyers were paying top dollar for a complete “renovated” home which was not completed properly and not what was advertised.
The agent/owner/flipper was shocked! He did not understand or believe that the buyer would cancel. Had the buyers chosen another agent, more than likely another agent would have glossed over the deficiencies and pressured the buyers to close. There are not too many agents like us who care whether or not the buyer is getting all they contracted for. Which is the best reason for home buyers to always work with an Exclusive Buyers Agent
Seller later offered to reduce the property by $8K, but was “too little-too late” for the buyers. They were off to another property.
Flipper house #2
This house was larger and looked like it had good possibilities. When we looked at the house, there was a “contractor” aka “handy man” working on some things. The pool was green and there were electrical wires hanging out everywhere in the pool area. To me it looked like there was a bunch of garbage in the bottom of the green pool, but it was hard to tell. I was told it was just my imagination…
Inside the home, the sellers had already put in a new kitchen and new appliances, which I admit looked good. However the doors and drawers did not close properly and some needed adjusting.
Although the house appeared like there were a lot of improvements, many were in the stage of being only half finished and upon closer examination revealed many unfinished problems: The master bath had new tile placed over old tile and was left unfinished. A new hot water was placed on a wooden box that was collapsed etc.
The listing agent was in my opinion…not on top of things. The owner/seller lived in another state and it was obvious the agent was afraid to call or verify anything with him.
For example, the roof was “new”, but no permits were pulled. The agent said it was because the roof was leaking (it was not) and he said the roofer put the new roof on in a 2-day weekend. Sounded fishy since there were no water stains on the ceilings which had not yet been painted. Besides they could have applied for a permit following the work being completed. Nonetheless, we were guaranteed that there was a roof “warranty”.
I requested the roof warranty, but no one seemed to have one. When I pushed for someone to get the warranty, I was given the name of some fly-by-night “roofer” company about 50 miles from here. No one answered the phone or returned a call.
Our home inspections revealed that the roof was not completely finished and had 2 different colors of shingles. The dormers had not been replaced and the old ridge vents had the end caps missing. The gutters were full of nails and debris with real “plants” growing out of all the gutters.
The buyers were concerned about the pool which was still green with open wires sticking out of the pool pump and pool heater…the inspector was not even able to inspect anything related to the pool. After I insisted that the “handyman” on site was not qualified to do electrical work, the listing agent acted concerned. The listing agent then agreed that he would personally hire the manager of a pool company (that was a friend of his) to fix everything that was wrong with the pool. The listing agent then called and said that everything had been fixed. He insisted that he was there personally and everything was done to perfection.
I started to feel better, until I learned that it was a big fat lie. We re-checked the property again and the pool was still the same green with the same exposed wires everywhere and the pool full of junk. Nothing had been fixed. Nada.
Do agents lie? Yep, they sure do. I don’t think the listing agent was expecting us to check on it again. We have learned through experience not to believe anything that we are told, so we do verify. As Exclusive Buyer Agents, we take our duties seriously…
So the bottom line was this…we were able to convince the seller to credit buyer $6K for completion of the needed repairs. The buyers were exhausted, but happy with that since the remainder of repairs were going to get completed properly by someone else.
So is the flipper house worth buying? Maybe, or maybe not. I have seen more flipper disasters rather than a good rehab. I say home buyers should tread lightly, and look past the “pretty parts”. Truth about Florida’s real estate flippers may not be so pretty.
In case you can not view this video here, please click the link below to view Truth about Florida Real Estate Flippers on my YouTube channel: https://www.youtube.com/watch?v=x_ftathArVY&feature=youtu.be