The truth about flipping homes in Austin TX

Here is a good story from the Austin Statesman about flipping houses in Austin. We’ve tried to hunt down some flip deals for a few Buyers but have decided it’s not the best use of our time. We don’t have cable TV or watch much TV, but from what I’ve been told by others there are a lot of TV shows about selling, rehabbing and flipping houses that make it look easy. It’s not easy.

Back in the 1980’s and 1990’s, real estate investors were a small group of people. Now everyone with Cable TV training and free time on a weekend is a nascent fix and flip artist. We also have way more young couples (weekend warriors) willing to buy a fixer and live in it while they work on it for a couple of years (thanks to the IRS 2yr capital gains tax exemption) and they drive up the pricing of fixers beyond the amount that makes sense for the old school fixers like us.

The good news is, if you have a beat up old house in a desireable area, you have a much bigger pool of potential buyers than you would have (proportionally) 10 or 20 years ago. The bad news for investors who want to fix and flip homes, those homes are not just laying around like they were in Austin in the late 1980’s and into the mid to late 1990’s.

Here is the story below:

Take it from these Austin pros: It’s hard work, high risk and not a ticket to easy money.
By Charles Ealy
Sunday, March 18, 2007

If you’ve ever stayed up late and channel-surfed, you’ve probably seen a cheesy infomercial about how to get rich quick by flipping homes. You know the pitch: Buy a house cheap, fix it up and sell it fast for a big profit.

Don’t believe them, say Rick Villani and Clay Davis of Austin. You’ll do much better if you set your sights on “getting rich slow.”

It might not sound as appealing, but it’s much safer and more sensible, Villani and Davis contend in their new book, “Flip: How to Find, Fix, and Sell Houses for Profit” (McGraw-Hill, $21.95). In it, they offer detailed advice on what they say are the two big strategies in flipping.

“You have to find value or create value,” Davis says.

The men, who are co-owners of Austin-based HomeFixers Corp., say they have worked on more than 1,300 flips in recent years and have attracted the attention of TV’s “Flip That House.” And no, that’s not a cheesy, late-night show. It’s on The Learning Channel, and it’s similar to “Flip This House” on A&E.

They also have caught the eye of one of Austin’s biggest names in real estate: Gary Keller, co-founder of Keller Williams Realty Inc.

He’s the co-author of “The Millionaire Real Estate Agent ” and “The Millionaire Real Estate Investor,” and he chose the “Flip” book to be the third in the Keller investment series.

“You’d be hard-pressed to find anyone with greater real-world experience in the process of flipping houses,” he says in the book’s foreword.

That experience paid off for Stacy Spickes, the flipper who hired Villani and Davis to be the contractors on the remodeling at 10500 Settlers Trail in the Anderson Mill area, which will be the focus of a “Flip That House” episode in May or June.

Villani and Davis made recommendations about what to fix, then hired subcontractors to get the job done and stay within budget.

Spickes ended up selling the home within a week of its being listed, to a lawyer who had been looking at the house during the remodeling stage.

Profits aren’t promised

The “Flip That House” crew came to Austin earlier this month, filming the final segment on the home.

Oddly enough, Villani and Davis criticize TV flipping shows, most of which follow a remodeling project but sometimes don’t show what the outcome was. They leave the impression that most flips produce fat profits.

In reality, the profit isn’t always that big or guaranteed, not even in the robust Austin residential market.

Villani and Davis have learned this firsthand.

“We once bought a house that was literally a few hundred yards outside one of our hot target neighborhoods where we’d done about a dozen rehabs,” they write in “Flip.”

“We were able to get the house at such a low price that we thought we’d have no problem making a good profit. But we didn’t do our homework — the house was across a major highway.”

The market forces that applied to their target neighborhood didn’t work on the other side of the road, they found.

“Eleven months later, the house finally sold resulting in a profit of less than $1,000,” they say.

Spickes had a much better outcome. “We’ve done a number of projects with Rick and Clay,” says Spickes, a real estate broker with Austin Realty Connection and a home rehabilitation expert with Austin Home Rescue.

“They’re great on being up-front and giving good counsel,” Spickes says. “They know where people will spend money where they don’t need to.”

In Spickes’ case on Settlers Trail, that advice saved her about $7,000 to $8,000.

“We had decided we were going to completely rework the master bathroom,” she says. But Villani and Davis advised that there wouldn’t be much added value by gutting the room. “So we decided to stay with the existing layout.”

Spickes bought the home a few months ago for $95,000 from a widow who was living in a nursing home.

The remodeling included power-washing the stone exterior, installing a new front door, knocking out some interior walls, repainting inside and out, laying down new carpet and tile and updating the kitchen with new cabinets, countertops and appliances.

Spickes already had remodeled another home in the neighborhood and sold it for more than $180,000, surprising several nearby homeowners in the modest subdivision. People on the block contacted the widow, whose house was vacant, and who then called Spickes.

Spickes gave her two choices. She could list the house for about $130,000. But she’d have to pay closing costs and various other fees while she waited for it to sell. Or she could sell it immediately to Spickes for about $95,000 to $100,000, with Spickes covering the closing costs.

“The owner wanted to be rid of the home, and we got it for $95,000 after we discovered about $5,000 in termite damage,” Spickes says.

After remodeling, Spickes listed the house for more than $200,000 and sold it for $199,300.

When remodeling expenses are subtracted, the final gross profit is about $67,400, Spickes says.

But “the truth is that’s not how it really shakes out,” Spickes says. “And it’s important for new investors to know about these costs.”

The $67,400 figure doesn’t include financing costs of about $18,000, closing costs for buying and selling the house, utilities, property taxes and other expenses. When all is said and done, Spickes estimates that she’ll clear about $35,000. It took about eight weeks to complete the flip, from purchase to remodeling and resale, she says.

While $35,000 is nothing to sniff at, it’s also not a quick way to get rich.

Can you take the pressure?

Then there are the headaches.

“You have to have a high tolerance for stress to be a flipper,” says Kary Aycock, a real estate broker and principal investor in Austin-based Little City Properties.

Aycock worked with Villani and Davis on her first flip a little more than four years ago and has since flipped a few dozen.

“My first flip was a house on Haskell Street, in the Holly Street neighborhood.”

More recently, she has been working on a 0.39-acre lot with a home on it. She has subdivided the land on South Second Street and begun remodeling the existing home, adding a duplex.

“The home had been scarily remodeled,” she says, and when contractors began to demolish the walls, they found more problems than expected.

“You have to account for the risks before deciding to buy, and you’ve got to have a contractor you can trust,” she says.

Still, Villani and Davis contend that it’s reasonable for someone who’s willing to commit the time and effort to flip about one house per year.

“When we start a project, neighbors come out of the woodwork, saying that someone is finally fixing up that eyesore,” Villani says. “It’s a redemptive kind of work.”

2 thoughts on “The truth about flipping homes in Austin TX”

  1. I remember showing this article to my husband, who really only reads the sports. He made a face and said, “What a snake.” My exact thoughts.

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