Les Jones

Mortgage Crisis > John T. Reed Critiques "Flip That House"

Real estate investor and author John T. Reed has an interesting review of the "Flip That House" TV show:

Choice of improvements

The flippers in Flip That House generally make the typical beginner mistakes with regard to what improvements they make to the house. The main mistake is the most common one among beginning flippers. They fix the house up as if the object of the exercise were to impress visitors to the house with their excellent taste and the completeness of their transformation of the property. In short, they make improvement decisions as if they were housewives whose only goal is to make their personal residences look really nice to visitors.

Get the fast buck, not the last buck

In fact, the object of the exercise is to maximize your profit on your investments of money and time. You must get the fast buck, not the last buck. The Flip That House flippers make the common mistake of chasing the unprofitable last buck.

Obviously, each improvement you make to a house has a different profit margin. Furthermore, I suspect most of the improvements made by the Flip That House flippers have a negative profit margin. That is, they cost more than they add in value to the home. They lose money. The flippers would have made more profit if they had not made the improvement in question.

At the end of each episode of "Flip That House" a real estate agent appears and confidently tells the flippers how much their house is worth. One of Reed's readers tracked down the property tax records for one of the houses featured on the show. Result? Instead of being worth $240,000 as the real estate agent claimed the house was listed on the new owners property tax records as being worth $210,000. That just about equaled what the flipper had in the house, not counting transaction costs, interest, insurance, or their time.