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Flipping, ethics, and the return on sweat equity


Christiane of Erwin House brought up a particularly interesting topic: Is there an ethical way for house lovers to “flip” a house? She and her husband, David, have been bitten by the renovation bug and daydream about possibly doing it all over again in another house, but they don’t want to be branded with a word that has such ugly connotations (in house blogger circles, at least!)
The comments people have left are very insightful – and the answer, essentially, is yes. One commenter writes – “Be serial restorationists, not flippers.” By definition, flippers are only undertaking the renovations for profit. They are not emotionally invested in the house; they usually don’t live there, aren’t tied to the neighborhoods, and cut lots of corners to keep costs down. But we have alot of problem houses around here. Houses that sit neglected for years and years. If someone is willing to take on a rundown house that your average homeowner wouldn’t buy, clean up the worst of the mess, and resell it (therefore greatly extending it’s lifespan and usefulness), can you really hate them for it? While I don’t condone half-assed repair jobs, half-assed is sometimes be better than not at all.

On the other hand, un-doing remuddled patch jobs is harder than doing it right the first time. So, as always, there’s a flipside to that coin if a true house-lover comes in and has to undo flipper fixes.

This discussion is particularly interesting to me because we talk about doing some type of house-flipping all the time. I know we couldn’t just slap a coat of paint over wallpaper and call it a day, so we probably wouldn’t be the most profitable flippers. We just really love renovating, and know that eventually we’re going to run out of things to do here!
Because our curiosity was killing us, we had a real estate agent drop by the other night to check on our renovations. We wanted to see what kind of value we’ve built with all our sweat equity. Based on her appraisal of the place, it’s safe to say we’re headed in the right direction and could make a great profit (a year or two from now, when the exterior is repainted and the upstairs is as pretty as the downstairs) if we were ever to sell it.

Most of the time I cannot imagine parting with our house, and all the memories we have already made in it. I doubt we’ll ever tear ourselves away from Dirty Gert. But a profit big enough to pay off our student loans, credit cards, and car payments in one swoop and still have money left over for a downpayment on our next fixer-upper? That is mighty tempting!

What are your thoughts on flipping? Good, bad? I guess it depends on the area you’re living in, and what type of houses are being flipped.

Comments, Thoughts, and Feedback

Patricia W. had this to say on 08.24.06:

In Jackson we have a local couple who flip old houses at a rate of about four a year. There was a huge article about them in the paper. They very carefully select the homes they flip and become attached to each one during renovations. I actually looked at one of the houses during my house hunt which they later bought and flipped. The house turned out beautifully. It was painted and had new vinyl windows installed, a new furnace, new roof, new deck, new kitchen and bathrooms, etc. They said they try hard not to strip the homes of their personalities leaving as much original as possible. I was miffed at first to learn about the windows but old home enthusiasts can’t expect everyone to spend as much time fixing things as we do. And let’s face it. Sometimes the idea of having a window that already has triple panes, a screen, and can be tilted inward to wash sounds really good : ). They also help the community because they buy homes in areas that aren’t always the best (but not the worst) and by doing this they improve the area considerably. Also, they buy very low, invest anywhere from 15 – 25 thousand and make a profit of about 25 – 30. Not bad for three months work.

Paul had this to say on 08.25.06:

My wife and I have had this conversation several times. I know the value of our house has increased over the last two years. My feeling is that the work I have put into the house is worth more than money, it is what makes the house special to me. I suppose I should feel more detached, it is just a building after all. As far as ethics, I don’t think there is anything unethcial about flipping a house, so long as the work is done properly and the house is represented for what it is.

Derek Canavan had this to say on 08.27.06:

Hi Mindy,
Flipping is actually how we purchased the Brockton Bungalow. We had a tiny ranch that was in a state of devastation when we paid merely 69K for it. Yes, 69K, not 169. We put on a roof, did the whole interior paint thing, put down one of those “faux tile” kitchen fllors for a buck per foot, did replacement windows on the cheap and I re-trimmed all the interior which was pretty easy since the whole house was about 800 square ft. I re-finished the hardwood, did some shingle siding on the front, a new fence and bam! 2 years later sold the place for a price of 160. We figure we spent about 10 grand so that is an 80K profit. With that we were able to buy this place and still have enough cash on hand to do the things that made a cash strapped firt time buyer unable to buy this place. The Bungalow was in such poor shape that we dumped 20 grand into it in 3 weeks of passing papers, just to take it from uninhabitable to disgusting. So, flip away. I’m waiting for the market to go REALLY soft and then I’m gonna suck up some rental prop and rent it until the market is good again in 7-10 years, then flip it and pay for my kids college.

Mindy had this to say on 08.28.06:

Thanks for the input, all! Derek, I didn’t know you flipped a house prior – good fo ryou!

We’re not ready to flip our beloved just yet, but we have thought about getting a very (VERY) cheap place in the 30k range to work on next. Teague’s business tends to slow in the winter, so it would give him something to work on. Not in the budget this year, but maybe next!

Mark had this to say on 01.06.07:

reprinted from – great sweat equity article

Sweat Equity

Sweat equity is an opportunity for a homeowner to increase the value or equity of their FSBO home by applying their time and skills towards renovations, upgrades, additions, etc. Many a “fixer upper” has yielded significant return on investment to individual(s) that have the skill set, time and tools to dedicate to the project.

While most “handyman” homeowners are a work in progress and skills are developed along the way it is important not to bite off more then you can chew. Specifically, don’t undertake a task that is over your head – skill-wise, time-wise or financially. You can cause more harm ($) then good.

Here are some tips that are born through personal experience:

Start a project – finish a project. Pick one room or project at a time. Try not to have several projects going at the same time. You don’t want to spread your finances too thin and be in a position where nothing gets completed and your home is still a “fixer-upper” 3 years later. This can actually devalue your property. Furthermore, there is a strong feeling of accomplishment that accompanies every project completed, no matter how small – this keeps you going throughout the life of the project – believe me.

Perform a reasonable time and cost estimate for the total project – now triple it! This will ultimately prove difficult and likely be off by an order of magnitude, but at least you have a list of “what” you want to do and some semblance of an estimate.

Prioritize – Pick the project that represents the most sensible ‘next” step while considering the financial return. If you don’t have a functional toilet – that is an obvious priority. One of the first “Sweat equity” projects we undertook was to “paint” the roof of our 100 year old farmhouse. There were many factors, not the least of which was season – it was summer and roof painting weather. That and the old metal roof, while in very good shape was rusted and looked like crap. 8 gallons of Tremclad and painting supplies ($250) – 5 friends (free), 2 cases of beer ($50) for after we were off the roof, 6 large pizzas ($75). 2 days later I figure we added $5000 to a $60,000 home. Not bad for a $330 investment (my strong “sense of accomplishment” may have clouded my estimate but you get the idea).

Contain the mess – If you are living in the home, which is common when you are trying to save money, while performing your “sweat equity” endeavor you don’t want to subject the whole house to the mess that most renovations or additions create. Tarp off the room you are working on, if possible. It is difficult to do major projects with small children so try to do this BK (Before Kids).

Do material takeoffs to determine price of materials and try to order everything required, some articles may need to be ordered, so factor this in.

Visualize or roughly draw out your plans before you start work.

Gravity – Start at the ceiling and work down. If you put down new carpets or hardwood and your ceiling needs a fresh painting you risk damaging the new floor covering.

Buy the proper tools! I struggled through 10 years of wooden miter boxes and a finishing hammer before I went out and bought a power miter saw and air-nailer. These items have come down substantially in price and provide better quality better workmanship in less time – go figure. Never drink and use power tools (see “Hey Buddy” below).

Take your time and do things properly. Potential home buyers have a great eye for shoddy workmanship.

Be conventional in taste – do not force your personal tastes into your project. Stick to neutral finishing items when possible. This means beige tile, white bathroom fixtures, neutral floor coverings.

Measure twice – cut once. Materials are expensive. If you’re not using something right away make sure it is stored in a safe place. On this same subject, unless you buy something at a substantial savings, don’t buy it until you need it. Husbands; under no circumstances do you buy anything that can be seen after the renovation that your wife hasn’t seen and approved. Removing the item and/or divorce are both unnecessary expenses.

Leave drywalling to the professionals. I have undertaken virtually every sweat equity project known to man and I feel I am proficient and effective at most. That said, leave drywall to the professional. It ultimately represents the “finished” viewable project. Proper drywalling is an art, and it’s a messy, crappy job. Drywallers, by trade, are relatively inexpensive and almost always perform professional work. Worst case, hang your own drywall board, but have a professional come in to tape and plaster. You’ll appreciate it after the fact.

Use events as a deadline to complete a specific project. Example, Mother-in-law is visiting July 14th – use this as a motivation to finish the spare room (maybe not a great example)

“Hey Buddy” – Share “sweat equity” projects with a friend with different skill sets. Maybe you can wire and they can plumb. Send equal time at each others home trading services. Additionally, it is typically more fun and motivating to work with a friend then to work by yourself. Accept all the professional help/advice available. Family members and friends will often work for beer and pizza – again, make sure the skill set is there. It costs money if it isn’t done right the first time.

Use the internet as a reference for repairs and improvements

And finally…

ALWAYS cut away from yourself. I remember my father telling me this every time I carelessly rip myself open with an exacto knife.

“Sweat Equity” is a huge opportunity to create significant equity in your home. Keep in mind this is not for everyone. Time, skill and tools are an integral part of a successful “Sweat Equity” project. Sweat Equity driven fixer uppers are not for the lazy or those with unstable relationships. There are lots of decisions to be made that can severely challenge the strongest relationship. Oh, and consider this your part time non-paying job, so plan on working evenings and weekends. And maybe consider a second job to finance the renovation project. As my father always said – “If you want something done right – do it yourself.”

Ready, set go…

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