Mr Al Young Dot Com

There is yet another show on TV about flipping houses.  We all knew the housing bubble would burst when we flipped the channels and found nothing, but shows on flipping houses.  It reminds me of the Dot Com boom days when everyone was day-trading, because it was so easy.  The flipping shows also make it look easy and fun to quit your job and flip houses for profit.  I count no less than 3 flipping shows, and there are probably more.  There is Flip this House, not to be confused with Flip that House, and Property Ladder on TLC.  They are all similar shows about the reality of flipping houses.  What differentiates the shows is the personalities of the investors featured.  My favorite is Richard Davis and the Trademark team at The Real Estate Pros.  This is formerly the first team from Flip this House.  I like the aggressiveness of Richard Davis, and following the success of the Trademark team as the firm grows.

Now, there is yet another flipping show just when the mortgage and housing market is collapsing across the country, “Flipping Out” on Bravo TV.  After watching the first two episodes, I actually like like this show.  Like The Real Estate Pros, it follows the trials of a team of real estate flippers, this time in Southern California.  The main investor, Jeff Lewis is something else, eccentric to say the least even by California standards.  He consults psychics to determine which house to buy, and is constantly berating his staff with harsh demands, hence the title “Flipping Out”. 

Besides being fairly entertaining, a look at Flipping Out yields a few lessons on how to deal with the current real estate market.  I shared a few insights in my post on how to adapt to a changing real estate market.  My advice to real estate investors can be summarized in 2 points:

1. Change your investment strategy 

2. Change where you employ your investment strategy

A look at Flipping Out illustrates these points.  First, the team is still flipping houses, a strategy that is so “last year”, like day trading is so “2001″.  Flipping houses works best, or rather the easiest to do when housing prices are rapidly appreciating like they have the past few years.  When that is happening, flipping houses, or buying pre-constructions homes is easy to do, almost like printing money.  Ahh, the good old days of last year.  However, when prices stop appreciating, and credit is tight, it is quite a challenge to make money by flipping.

What is different about this flipping team at flipping out is that they don’t flip $100-$200K houses in South Carolina like The Real Estate Pros do.  They flip high end homes in Southern California that range from $1 million to $4 million dollars.  So, the profit margins are much higher.  Instead of squeezing out $50-100K profits on a flip, the potential profit is several hundred thousands to several million in some cases. 

Of course higher end price ranges require more capital, and more risks, but it does illustrates that flipping houses is not a totally dead real estate strategy.  It is an example of my point on adapting your strategy.  First, it adapts your typical flipping strategy, by targeting the high end homes in Southern California to flip.  Buyers at that spectrum of the market are less susceptible to swings in interest rates, and the housing market.  Many buyers buy with all cash.  The housing market is still very strong in high end areas such as Greenwich Connecticut, and in Austin Texas where I have a high end project.  The buyers in the end market are more discriminating that your typical buyer, so the material costs are higher, but it is roughly the same types of labor as cheaper houses.  Redo the floors, kitchens, etc..as you have seen in all flipping shows.  Speed is still of the essence in flipping a house, and it does take a bit longer with high end homes because they are much bigger, but its still the same work and strategy.

The show “Flipping Out” is a good example of my points on how to adapt to a changing market.  Even in a slowing market, you can adapt your strategy to make it work.  I would be interested to see how successful the flipping out team is in the future with the new credit crunch in the mortgage market, particularly in the jumbo loan products.  My guess that it will have an effect on their business, but there is still opportunities there.  I’ll be watching.