ConstructionDeal.com Update

The real estate boom peaked in 2005 and the housing bubble has been slowly deflating ever since. Economists say that risky lending practices and speculative real estate investing purchases pushed the home prices high and now we're in the midst of a correction.

But that doesn't stop people from wanting to flip homes for a profit. Interest is still high to buy a bargain home, fix it up, and sell it for a high price.

Is it too late to start flipping homes as an investment strategy?

The short answer is... it depends. America is faced with a supply and demand issue. Home builders built too many homes, other real estate investors gobbled up property only to flood the market, and people are losing their homes to foreclosure. All of those issues have increased the supply of homes for sale in the market.

And, demand is down. Despite the fact that interest rates are good and the job market is strong, potential buyers are worried that the market has not hit bottom. Buyers don't want to purchase a home that they think they could have gotten for less in 6 months time.

Another problem is that too many subprime, risky mortgage loans were made to people who couldn't afford those homes or who had shaky credit. As their payments rise, more and more homes will go back on the market, at low prices, in the foreclosure process. And because lenders will be tightening their credit policies, fewer people will be eligible to buy homes - - keeping the excess inventory of homes high.

What does this all mean to a potential House Flipper?

If the goal is to buy low, renovate, and sell high then this market could be a real problem for a real estate investor. One advantage you'll have in a situation like this -- there are a lot of homes for sale. Homes that can be bought "low".

The problem comes when you compare the term "low." Home prices are dropping and, in most areas, should continue to drop across the country for the rest of this year and perhaps into next year. You could get a great deal on a house compared to 2005 prices. But, if prices really drop in your area of interest, your great bargain might end up being too expensive before you do any renovations.

So, it's all bad news?

Not necessarily. Some areas will still be in high demand and housing supplies are not excessive everywhere across the country. A wise investor who knows the real estate market in their area can still flip homes. Or, if you don't know your investment area, it would really pay to partner with someone who does. A quality realtor knows how to find the diamond in the rough.

The trick to real estate investment in a shaky market like this one is to find the ugliest house in prettiest neighborhood and (here's the key) make sure it's still a neighborhood that people want to buy in to.

What steps are needed to flip a house?

Many people are going to make the mistake of scooping up properties, sight-unseen, that have gone into foreclosure. They may feel that any bargain is a wise investment. They will most likely be wrong.

Many homes will fall into foreclosure in 2007. Many: "The percentage of mortgages that started the foreclosure process in the final quarter of last year rose to 0.54 percent, a record high. The previous high, 0.50 percent, occurred in the second quarter of 2002 as the economy was recovering from the blows of the 2001 recession."

Bloomberg says as many as 2.2 million homes with subprime mortgages may be at risk. It's going to be important that investors not focus on getting a great deal on a foreclosure. As with all real estate decisions, it's still about "Location, location, location." You still want to make sure the home is in a desirable location (the ugliest house in the prettiest neighborhood, remember?)

Next, you want to partner with a contractor who can be available for fast and quality remodeling projects. The renovation process cannot take too long. The home needs to be purchased, remodeled, and sold as quickly as possible. Every mortgage payment cuts into the bottom line.

Make sure you have the home inspected, if possible, before you buy. You cannot afford to put money into needed repairs that are not visible to a potential buyer. Replacing electrical wiring, air conditioners, faulty subfloors, and repairing mold damage eats away at your budget and does nothing to impress anyone during a showing.

When it comes to your renovation plans, less can be more. Remodel the home with aesthetic details in mind (Read: How to Beat the Housing Bubble.) Start with fixing and improving what can be seen. Get the house to appeal to the emotions of a potential home buyer. Sometimes a home can be flipped by just painting the interiors and laying new carpeting. Many times, to realize a true profit, you'll need to go farther.

Start with the Kitchen. Kitchen remodeling is the heart of every home. And the emotional attraction for homebuyers (Read: Budget Kitchen Remodeling.) Kitchen renovations bring in the great return on investment, statistically (if it's done right.) Fix up bathrooms next. They also provide good returns. Flooring and paint are also big parts of any renovation for a flip. Don't go with wild or extreme colors or fixtures or materials - just because you like it doesn't mean the buyer will like it. But don't go with boring white colors or cheesy laminates. Safe, neutral materials and earth tone colors are the best (Read: Paint Color Trends.) Go with stainless steel appliances, granite counters, and hardwood floors. But do not go with the top of the line brand in any product or material you buy. Keep your budget in mind.

Outside, make sure the curb appeal of the house is up to date (Read: Top 6 Landscaping Tips) It's the first thing the potential buyer sees and first impressions really are everything. Cut back overgrowth of bushes and trees. Sod the yard. Fix broken shutters. Paint the house or fix the stucco or siding. Make it as inviting as possible.

What about selling the investment property?

After you've completed your property renovation, you'll need to put the house on the market. Don't try to skimp on selling your house. Many get greedy and try to save money by not working with a good real estate professional at this point. They foolishly believe that they can sell the house on their own. A quality realtor can spread the word in all the right places to make sure you garner attention to your property.

Also, pricing the house too high for the area - in this market - can kill your prospects. With so many choices out there, and so many comparably priced new homes that are still for sale, it's suicide to be greedy on your selling price. Make a splash by having a newly remodeled home at a good price and you may end up with more than one interested party who will give you more than your asking price.

Finally, be prepared for the worse case scenario. You may renovate a house and have it sit on the market for longer than you expect. If the economy tanks and people start losing jobs, you could be stuck with your investment. Remember that there are people who would love to buy the house but cannot sell theirs. And that there are many homes to choose from so you've really got to have a great house in a hot neighborhood. And, there are now fewer potential buyers with the risky loans and tightened credit policies (very few will offer people 100% financing anymore.)

If you can live in the property while you're flipping it, you may curb some of the dangers of being stuck with a 2nd or 3rd mortgage. If the house doesn't sell immediately, you'll be able to live in it and hang on through a tough market.

RELATED POSTS:
How Not to Beat the Bursting Housing Bubble
Ways to Improve Your Home Value
Curb Appeal: Improving Your Homes Look

When you're ready to renovate - submit your remodeling projects on the ConstructionDeal.com website. It's a fast, free and easy way to get multiple bids on your jobs. Just post the project and wait for quality pros to contact you. It's also a great way to make sure you have a backup contractor in case one you've chosen is not available fast enough.

Producers of the show "Flip This House" use ConstructionDeal.com find contractors. What more of an endorsement do you need?

Labels: House Flipping, Housing Bubble, Real Estate, Real Estate Investment

• Keep walkways and driveways clear of snow and ice. You may not have to mow the lawn or trim the shrubs, but in the winter, consider this duty your 'yard work.'


• Present a warm and cozy home. Make sure the temperature is comfortable and not too cool for visitors coming in from the outside. Turn on gas fireplaces if you have them.


• Show during 'high-daylight' hours and make your home as light as possible. Clean blinds and curtains and keep them open during daytime showings. Put the highest wattage bulbs in amps and fixtures, and turn the lights on when you show. And wash your windows -- even a little bit of grime gives the impression that the home isn't well cared for.


• Set the mood with a little soft background music and some pleasant smells. Light a few candles that give off a nice scent, such as vanilla. Just don't overdo it -- you don't want people to think you're trying to mask a bad smell.


• Ask prospective buyers to remove their shoes or slip on paper booties over them. Doing so shows buyers that you are proud of your home and take meticulous care of it.


• Emphasize the features of your home that make it a good place to live in the winter. If your roads are regularly plowed and de-iced, be sure to make it known."

Something else to keep in mind. It's a good idea to wait to show your house until AFTER the Super Bowl. Why? Well, it can be pretty difficult to get men up off the couch on the weekends to go look at a house - until all the football games are done for the season. Naturally.

Housing Bubble Humor

Labels: Curb Appeal, Housing Bubble, Improving Home Value, Real Estate

From the folks at Washington State University, in the Department of Mathematics of all places, has a listing of real estate terminology. I thought with the current state of the housing market, it might be time to inject a little humor into the situation:

"It took me a considerable amount of time to learn the true meaning of phrases used in real estate ads. I offer the following dictionary for the benefit of those who search for a house and want to save their precious time.

• Old charmer - an old and ugly house
• Stunning house - the house is not ugly
• Tudor - two bedrooms are in the attic which is not insulated; very hot in summer and very cold in winter
• Cape Cod - styled after Third World slum dwellings
• Sunny corner lot - noisy intersection of two busy streets
• Easy freeway access - noisy arterial street close to freeway
• Low maintenance lot - no yard; the kids will have to play in the street
• Meticulously maintained in the original condition - the appliances are 50 years old
• Ready to remodel - the house is about to collapse; you will have to invest twice the asking price in remodel before you can move in
• Newly remodeled kitchen - 50-year old cabinetry and faucets have been replaced with cheap modern equivalents
• Ready to move in - the interior has been painted with one coat of cheap paint
• Desirable neighborhood - this little house is extravagantly overpriced because the neighborhood has a snobbish reputation
• 1 car garage - you can drive your Ford Escort into the garage but there is no room to open the door
• In-city living - it is not safe to walk in this neighborhood after dark
• Recreation room with wet bar - basement has been painted and has a faucet
• Large family room - large basement
• Bedroom in basement - basement has a 1' by 2' window
• Lots of storage space - basement too small to be called a family room
• Partial mountain view - you can see the tip of Mt. Olympus if you climb the roof
• Territorial view - good view of your neighbor's bedroom window
• Build sweat equity - the house is not inhabitable
• Storybook - the house is old and the roof is not flat
• Efficiently designed kitchen - the kitchen is too small to fit two people at the same time"

Related Posts:
Housing Bubble Humor
How NOT to Beat the Housing Bubble
How to Beat the Bursting Housing Bubble

Labels: Housing Bubble, Humor, Real Estate

Here's a bit of housing bubble humor for anyone who might be having trouble selling their house (courtesy of The Onion):

"For the third straight month, sales on preexisting homes dropped, leading realtors to call it a 'buyer's market.' Here are some strategies sellers are using to entice buyers:

* Dropping price by 50 bucks
* Carrying around wad of money; acting like owning this house got them that money
* Pointing out dishwasher several times
* Explaining to potential buyers how fulfilling it is to make mortgage payment on time
* Telling long, touching story about how grandmother needs $312,500 for kidney operation
* Letting third blouse button go
* Drowning out sound of noisy furnace with soulful vocals of Michael McDonald
* Reassuring buyers that people purchase things they can't afford all the time"

Related Posts:
How NOT to Beat the Housing Bubble
How to Beat the Bursting Housing Bubble
Real Estate Dictionary
Housing Bubble Humor

Labels: Housing Bubble, Humor, Real Estate

Okay, so I covered some tips to help you sell your home during this housing market decline (or bursting bubble, depending on your point of view.) But I also wanted to give some suggestions of what not to do if you're trying to sell your home these days.

I'm all for staging your house to make it visually more appealing - there's a house on my street in the $600,000 range, with a "Price Reduced" For Sale sign, that has two rooms that look like they were finger-painted in a blood red color... and they wonder why it hasn't moved for the past 3 months...

It's also necessary to make sure whatever is broken gets fixed -- if the home isn't going to pass prospective buyers' inspections, they're not going to pull out their checkbooks (it's regular to see homes here in L.A., with For Sale signs in the front yard, that have exterminators' tents draped over them.)

Where I worry is that desperate homeowners might look to make drastic home renovations to fan the flames of interest and spark a sale. There are a few remodeling jobs that will increase your resale value so it's important to know what to do and what not to do. Check out this 2005 Cost vs. Value Report to get an idea of how much return you might get, based on your area of the country, for what you'll spend on the remodel.

Two major suggestions of what to renovate: do a low-to-medium cost kitchen remodel or add an additional bathroom (if you have the space/correct floor plan - consult an architect or design specialist.)

Renovations I suggest you avoid if your selling your home:

- Basement Upgrades - You might be tempted to finish your basement or turn an existing area in your finished basement into a home theater. Or another bedroom. Despite the fact that you may be making the room more livable, more than likely it will not help you sell it and you probably won't get back the money you spend to do the job. Also note, you normally can't count a basement bedroom as another bedroom on your listing (depending on window size.)

- "Invisible" Upgrades - Unless needing repairs, don't replace or remodel anything that can't be seen. Telling people the house has a new furnace, a tankless water heater, or brand new copper plumbing just doesn't do the trick. buying a house can be an emotional and visceral experience. Updates need to be visual and visible. Crown molding can be seen -- new insulation cannot.

- Swimming Pool Additions - You've always wanted a pool, Jacuzzi, or whirlpool spa tub. But not everybody feels the same way. In fact, some people with small children definitely don't want those upgrades. Others with colder winters and maybe people without the extra income for maintenance might find these additions a deal breaker. Adding a pool in a small yard could remove a child's or a pet's play area.

- "Specialty Room" Additions - Don't spend any money to convert a bedroom or family room into a home office, gym, den, or home theater. Those rooms are great for your house, if you'll be staying there a while and you don't need the space. If you've already got a specialty room set up, change it back to the original purpose.

They say the current housing market won't recover until next year, depending on how the economy reacts the rest of this year. Make sure your house is ready to sell but don't throw money away on renovations that won't provide a return on investment.

Use ConstructionDeal.com to find local contractors for your home improvement projects. It's a fast and easy way to find local contractors - at no cost.

Simply tell us about your project and you'll get 4 quotes the same day - sometimes within minutes. There's no fees and there is no obligation to hire anyone.

Related Posts:
How to Beat the Bursting Housing Bubble
Real Estate Dictionary
Housing Bubble Humor

Labels: Home Improvement, Housing Bubble, Real Estate

I've been studying a lot of sites that cover our slowing (some say crashing) housing market. Housing sales have decreased dramatically the past few months, and housing prices are falling all across the country.

Many homeowners are still holding on to unrealistic expectations and many would-be buyers are making ludicrous lowball offers, so the market is basically at a stalemate. As inventories jump, prices will have to plummet. Many don't expect it to get better until at least 2008.

Last year and part of this year, home prices skyrocketed to ridiculous levels. And now, no one wants to be the last person to have paid way too much to buy a house. To read more on the media coverage, I highly suggest Ben Jones' blog, The Housing Bubble.

If you own your house and waited too long to sell, I've got a few tips to help get your home off your back:

1 - Start with your Real Estate Agent - Make sure your current agent has a ton of experience. Used to be you could hire any agent, with only 2 months on the job, and the house would sell before her or she pounded the "For Sale" sign into the ground. No more. Get someone with experience, name recognition in the community, and superior sales skills.

2 - A Proactive Agent - Get an agent that will truly "pound the pavement" for your listing. You need a proactive agent that will be out there, moving and grooving on your property. Many of the newbie agents that got into the biz over the last two years will be in "career change" mode in the next few months. The real agents who know how to work will be the ones who survive this cycle. Find one who will work for you!

3 - Know an Agent's Quality - A great agent will guarantee his or her service in writing. A bad one would run for the hills from a guarantee. A great agent will not make you sign a long term listing agreement. A bad agent will freak out if you won't sign a fat contract. If it's not working out, you need to be able to cut the cord.

4 - All the World's a Stage! - I got an email from a Home Stager the other day (her business is called "ReFluff Your Stuff" in Georgia - I love that name!), about listing her business on our main site, so I thought I'd do some research. Hire a stager to go through your house and make your house sellable. Many people wrongly think staging is too expensive. Not true. It's about being creative, not spending money. It's actually possible to sell your home "as is" (and not stage) and lose money.

5 - Realistic Pricing Plans - You're not going to get the big profit you thought you would. Plan accordingly for a much more stingy market. Let your agent do the research on the right price for your home, in your neighborhood. I would recommend not leaving your house on the market too long (and expect some really low lowball offers.) If you've already moved and cannot sell, consider renting the house out at a reasonable rate to help provide some relief.

6 - Self Staging - You're a Do-It-Yourselfer, huh? Okay. Know this - any wild and crazy decorations, furniture, fixtures, colors, and designs in your house will turn off the average John Q. Public homebuyer. You might have the most clever and eclectic taste on the planet. Your artsy friends think your house is "to die for!" But dark, rich colors on the walls and ultra-modern furniture can turn off today's picky buyer.

- To save money, make sure you have Curb Appeal: manicure the front lawn, add some colorful flowers, paint the shutters, trim bushes, paint the front door a nice neutral color, brush falling leaves off the roof, etc. Lay down sod if the summer beat up your grass. Add a new doormat.

- Is any room in your house red? Blue? Bright green? School bus yellow? Paint it. Creams, whites, pale yellows, coffees, and light earthy greens. With white trim around the doors. Use an eggshell paint to keep off fingerprints and make it easy to clean before an Open House.

- Declutter. Remove those piles of books, magazines, and newspapers. Less is always more. Remove anything and everything knick-knacky. Take out all your family photos. They want to picture themselves living there. Again, less is more. Makes the house look and feel bigger.

- Check under your 70's orange shag rug and pray someone put hardwood floors there. Pull it up, rent a buffer (or hire someone to simply re-finish the floor), and you've got an inexpensive way to add home value.

- Turn cluttered kid's rooms into a guest bedroom. Not everyone has or likes kids. It could turn them off to see a pink bedroom with ponies and stuffed animals.

- Steam clean the carpets. Remove pets to the Mother-in-Law's house (you might be used to the odors, but...) if you have them. Use new fresh towels, candles, and flowers during an Open House.

- Replace blinds. Keep curtains open during showings - natural light sells.

- Make sure the house has "feature cards" in every major room (sell features, such as 'air conditioning', 'new water heater', 'finished basement') for showings.

- Get rid of dirty clothes, trash in waste baskets, mail on counters, make it look like no one lives there. Or a photo layout in "Metropolitan Homes.

Good luck in selling your house!

Labels: Housing Bubble, Real Estate

AP Economics Writer Jeannine Aversa thinks so. The headline reads, "Existing Home Sales Drop to 2-Year Low" in this Yahoo Finance article.

It states, "House hunters shied away from buying in July, driving down sales of previously owned homes to a 2 1/2-year low. The inventory of unsold homes climbed to a new record high."

"The new figures, released Wednesday, provided fresh evidence of how much the once-sizzling housing market has cooled."Existing-home sales dropped 4.1 percent in July from the previous month to a seasonally adjusted annual rate of 6.33 million units, the National Association of Realtors reported. That was the lowest level since January 2004."

The article has this little gem, too: "Meanwhile, the inventory of unsold homes in July rose to a record high of 3.86 million. At the current sales pace, it would take 7.3 months to exhaust that overhang. That is the longest period to exhaust the supply of homes since the spring of 1993."

Labels: Housing Bubble