Dear Public,
Last week I got an invite to a celebrity flipping seminar. That’s right, I can go learn how to flip houses from Tarek & Christina, the stars of HGTV’s Flip or Flop. Being that this is the second celebrity event to come to town this year, let’s talk about some of the dangers of these events and the real temperature of the flipping market. Please note: I’m not angry. I’m not a hater. I’m not jealous. I only want to give thoughtful commentary for the sake of others.
Some things to know about these events
1) The reality stars won’t be there: This may come as a surprise, but the stars are not likely going to be there unless you consider a video appearance as being present.
2) The goal is to make money off you: The event is designed to whet your appetite only to invite you to go deeper by paying for courses. From the reading I’ve done it sounds like the next step costs $1,000 to $2,000, but some students end up spending far more over time ($5000+ easily). The event will feel good and you’ll probably be inspired, but make no mistake the real goal is to get you to open your wallet.
3) Flipping formulas don’t work everywhere: There is no such thing as a flipping model that will work in every location and every type of housing market in the United States, yet this event is being hosted in many cities and states. Moreover, it may be wise to be cautious about listening to a company coming from the outside, knowing far less about the local market, and using a celebrity’s star power to talk about flipping.
4) It’s no longer a foreclosure market: The market used to be full of bank-owned properties, so it used to be much easier to buy low-priced homes to make a quick buck. For example, in 2009 over 70% of all sales in Sacramento County were bank-owned, but now that number is 3%.
5) Experienced investors are struggling to find good deals: This event touts attendees will “gain insider access to private pre-auction real estate inventories.” Keep in mind even seasoned investors are struggling to find good deals right now because housing inventory is sparse and the foreclosure market dried up. Just last week I talked with an investor who was once easily in the top 10 in my market a few years ago, but is having a hard time finding deals lately. This doesn’t mean flipping is impossible, but it’s currently a really competitive market. That might be good to know before forking out thousands of dollars so you can “retire rich”, right?
6) More skill is required: Today’s market in flipping is much different than it used to be. A friend on Twitter said it perfectly: “The anybody flip market has dried up. It’s a contractors-special flip market now. Serious add-value needed.” I agree with this as today’s flippers often need to add square footage, add a second bath, maybe do a more substantial kitchen remodel, etc… It’s often not just a matter of picking up a property, putting on some “lipstick”, and re-listing it. The rules have simply changed since the “foreclosure flood” ended. In short, it takes more skill to flip in today’s market.
My advice? Be careful. We all want financial freedom, but you could easily spend thousands of dollars on these seminars to obtain “secret flipping knowledge” (that you can probably get for free). If you want to get into flipping I suggest meeting investors in your local market and scouring the forums on BiggerPockets.com for free flipping advice.
I hope this was helpful.
Sincerely,
Ryan
Questions: What is your favorite HGTV show? Did I leave anything out? What point resonates with you the most? If you’ve attended an event like this, was it valuable? If you are currently flipping properties, what advice would you give to a newbie? Any suggestions for places to meet local investors?
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Right on and well thought out. Reposting.
Thanks so much Jeff. I appreciate it.
I saw the promotions on that event also. This is really good advise here Ryan, thanks for bringing this information to light. So many people out there that could be taken advantage of. As always, you bring great value to our industry. Thank You!
Thank you Terri. I’ve been seeing ads on Facebook too, so they are certainly reaching out to locals. Thank you for the kind words.
Flipping homes is not big money, selling how to get rich quick is.
Very well said, Gary. Yep.
Flip kits are very much scams, you cannot flip without having extensive knowledge of construction and most importantly – the tedious and expensive permit process in Sacramento.
Thank you Alicia. I appreciate you saying this. Flipping looks so easy based on HGTV, but you never see the permit process. 🙂
That is the hook. Many of these so called flippers do not take out permits. They are rehabbing homes and performing repairs that need permits but they hide behind the lipstick as you say.
Thanks Daniel. Well said. You know, one of the tells for me that permits were not used is there are no smoke detectors or carbon monoxide alarms as required by code when there are permits pulled. It’s a simple tell and done so frequently. There were many local homes rehabbed in a flood zone through the years too and they clearly didn’t get permits because FEMA would not allow the homes to be substantially remodeled because of their rules. I’m not a fan of the FEMA rules, but it was interesting to see an entire house remodeled and then sell on the open market. I do wonder about HGTV and whether permits are pulled or not. I would hope so, but you never know. The shows make it seem like remodels happen very quickly, but then again they could have been set up weeks in advance of course. Anyway, it’s always interesting out there.
This is my ‘favorite’ conversation to have with people who call me to “flip houses”. Your post was well written and on point. I am sharing and plan to use this as a topic with my next Investment Lab workshop.
Sounds like you have quite a bit of experience fielding this conversation. I appreciate you sharing too. I hope the message gets out. People need to know what they’re getting into. It’s great to hear you do labs. Good luck with that.
The problem in making money in the “flipping property market” is not so much lack of inventory but rather the drying up of the number of fools who will pay ever increasing amounts for subsequent “educational seminars.” Great and timely article Ryan, you might have just saved me $35,000 as I was getting ready to write a check to the Trump University for tuition.
Oh George, I think I’ll stay neutral and not comment on Trump University. 🙂 On a serious note though, it sounds like some students paid more than $30,000 to learn the “secrets of investing”. Hmm…. http://money.cnn.com/2016/03/08/news/trump-university-controversy-donald-trump/
My wife and I went to one of these 2 years ago. Tarek and Christina gave a 5 minute video intro then the remaining 2 hours was on joining some national wholesale group for around $5000 or joining an investment team or joining a tax lien team promising access to tax lien certificates. They do sprinkle some good info in but in the end they want your money.
Thanks Derek. I appreciate hearing the inside scoop. I’m very hesitant about anything that sounds so good but requires $5000 up front. 🙂 The irony here is there is no guarantee of success with the supposed wholesaling network. Moreover, is there space in the market for new blood? That’s always a key question to ask. Thanks again Derek.
I went to one of these seminars with my fiance last year at his behest. The intent here is absolutely to take your money in exchange for information you can easily find elsewhere if you are willing to make the effort. The first course cost $2,000 and after that, they wanted upwards of $20,000 if one wanted to continue with their program (the first day of the seminar they try to pressure you into calling your credit card and asking for a raised limit or ask you to apply for high limit cards). They use very high pressure sales tactics throughout the entire course which was a huge red flag for me. We managed to extricate ourselves from the situation, however, I’m sure others in the room weren’t so lucky.
Thank you for sharing your story K. I am so glad you guys had wisdom in your corner. I imagine it’s easy to get sucked into something like this when emotions are high. It’s a shame to employ such high-pressure tactics. I once attended an “opportunity to make money” type event when I was 19, and the manipulation was just so blatant.
For any onlookers, I mentioned http://www.BiggerPockets.com as a resource. Anyone interested in real estate investing can find podcasts, forum topics, and blog posts at this site. And no, I don’t get anything for mentioning that. If you are looking to start investing, you might just want to put the podcast on your iTunes so you can listen to 100+ stories of different investors. I was on one of the podcasts too when it first began (not why I’m mentioning to check out the site).
Great article Ryan. The “flipping” train left years ago. It’s hard to find properties with any meat left on the bone!
Thank you Edgar. Folks, this is coming from a guy who flips locally. It is so true.
The reality is the low-priced beater homes left when the foreclosure flood subsided. This essentially resulted in the bottom of the price market being wiped out. There used to be a large disparity between the top of the market and the bottom of the market in a given neighborhood, so it was perfect to buy a beater REO or short sale. But now since the bottom has been bought up already, it has essentially made the new price bottom much higher than it used to be. In other words, there is not as much of a disparity between the top and bottom of a neighborhood market any longer, which leaves less room to buy, repair, and flip for profit. This is exactly why it requires more skill to flip these days.
Great article Ryan. I think you hit the nail on the head about most of this information being available for free online. You can find how to do just about anything online these days and BiggerPockets.com is an excellent resource. Networking with locals who already do this is also the best way to find out about what is happening in your market.
Yep. Great comment, Tom. Rubbing shoulders with reputable locals can be huge for learning. On a different note, sometimes we just have to ask if there is even a market for what the seminar is selling. When it comes to real estate I suppose we tend to believe who is speaking because we hear constantly how wonderful it is to own and invest. I hope we can think more critically though. As several have said via email today, “Whenever these flipping seminars start to pop up, it actually tells us the market for flipping has already passed.”
I couldn’t agree more! There’s so much competition in flipping in this market that, as you eluded to in your post Ryan, if you’re not a General Contractor who can add square footage cheaply you’re pretty much out of the game for now.
Well said, Bev. You know, these flipping classes are coming in to say the market is “hot” when it has hands-down changed. It’s sort of like Beanie Babies. They used to be all the rage and they were highly collectible too, but then the market changed. Someone could easily come around and do a seminar on flipping Beanie Babies, but at some point we have to really ask where the market is at before diving in. Ha ha. Okay, maybe that went too far, but that’s how my mind works.
Thanks for writing this post, Ryan. I, too, received an invitation in the mail to this same event. So sleazy. I’m really disappointed that Tarek and Christina apparently made a decision to sell their names to the company that puts on these events. Potentially subjecting fans to high pressure tactics and unwise investments, as some attendees have reported, and leading people to believe it’s easy money for non-experienced wanna-be flippers, reflects poorly on Tarek and Christina.
Thank you Kerry. That was well-stated. I agree with you. I am not a Flip & Flop hater by any stretch, but we have to be careful what we attach our names to in business and life. Seeing their names here on such an event does not help build credibility for their brand in my mind to say the least.
On a different note, Chip & Joanna, if you are reading this post (I know you’re not), please don’t ever do this. 🙂
EXCELLENT, EXCELLENT, EXCELLENT Ryan!!! You articulated exactly what these events are, every point was ON POINT!
I was scammed out of $11,000 by a Robert Kyosaki seminar back in 2011. What I got for my money was so pathetic that I was embarrassed that I fell for the scheme.
But in order to forgive myself for making such a foolish mistake, I had to find a positive side to what I had done.
I have to say, losing my money in that way (that I couldn’t afford) motivated me to go out and find a local mentor to teach me the real business of flipping and try to recover my losses!
I found the most amazing mentor who allowed me to trade sweat equity for my hands-on education and we’re still friends to this day.
A friend that I met at the seminar bought the most expensive level of classes ($50,000) and has only flipped 2 houses since then. With my mentor’s help (who didn’t charge me a dime, in fact paid me to learn) I was flipping on average 4 houses a month within a couple of weeks of meeting him!
Bigger pockets.com is an excellent free forum for learning everything you need to know about investing in real estate…then go out and find an amazing mentor with a big heart and work your ass for him/her to repay them…then pay it forward! 😉
Wow, Bev. Thank you so much for sharing your story. I can’t tell you how much I appreciate it. What a story too. I admire your tenacity to find a mentor and really learn how to be a flipper. While I’m sorry to hear of your financial loss, you are certainly not alone in taking classes to want to improve your life and situation. I think we can all relate to that. I’m just so glad you found your niche as a flipper extraordinaire. 🙂 Congratulations on your success.
To any onlookers, are you listening? We have countless stories so far about people who have been taken for a ride by flipping seminars. Please find a reputable local mentor to help steer you in the right direction. And it’s nice to see props again for BP.
Ryan when will the Big Banks start to unload all the foreclosed homes sitting on their balance sheets or off the balance-sheets? We know there exists a huge hidden inventory getting worked through while people think there is a shortage. One prominent real estate lawyer was telling people who currently live in homes the banks foreclosed on years ago.
1. As long as their not kicking you out, keep the lawn mowed and make their house look nice.
2. Save that money, one day they will ask you to leave when their massive inventories have shrunk.
3. I am worried about all the contractors driving around $100,000 SUVs and $75,000 giant pick-up trucks.
My friend made a living short-selling all the subprime banks and companies like Country Wide and the Irvine loan agency whose stock went from $50 to $.01. He said the lawyer was correct, there is still large amounts of houses not being offered. When do you think the banks will become fearful of missing out and start adding more inventory?
Hi Jason. Thanks so much for the comment. You know, I don’t know if the banks really have this huge “shadow inventory” as it is called. That very well could be, but I’m not holding my breath personally. There has been an unfulfilled promise of a coming wave of these shadow sales for years, but we haven’t seen anything materialize. I’m inclined to think it doesn’t exist. Sure, there are units out there where the owner has been getting a free-ride, but the banks seemed to sell off their foreclosed inventory in mass already. Moreover, when Blackstone and other investors came to the market, there were definitely off-market deals where big funds were buying non-performing loans and foreclosures that didn’t hit the market yet. There is no indication yet of a coming flood. The numbers in Sacramento just don’t show anything of that nature for the time being. You did mention “We know there exists a huge hidden inventory”, but how do you know? What proof is there? I’d love to hear your take.
Well said. Thank you for the great info as always.
Thank you Francine. I appreciate the compliment. Hope you are doing well.
I am not a real estate investor, but I found this enlightening nonetheless. Great information.
Thanks so much Teresa. I appreciate it.