Anyone buy new and flip at closing?

[Dixie]

Anyone ever contract to buy a new property that is scheduled for delivery several months out and then flip it to another buyer for a simultaneous closing (reaping the benefits of later phases increasing and taking the appreciation profit)?

I'm in Northern VA (Metro DC) and bought a townhouse in Jan. for a July delivery. It has since gone up $35K and on the last phase people were sleeping in their cars overnight! I saw another one in the development do this - the original buyer never moved in and sold it (FSBO) for $50K more than what he paid (he was on earlier phases).

Can you really sell a house you haven't even closed on yourself?

[sunint@sourceonepr]

Dixie,

I was trying to do the same thing in Bay area, CA. Found out that builders do not allow it. You have to close it and then flip the house. Nowadays in CA market, builders have started incorporating clauses in contracts where you have to live in the house for one year after the closing before selling it.

Again it depends on state and the builder I guess

Hope that helps


Sunny

[Deadbolt]

I also live in Northern Virginia, although not for long. I will make about $120,000 profit on my townhouse after owning it for less than 2 years. I am having a house built in North Myrtle Beach, SC and my house wont be ready until the end of November. There have been 2 price increases by the builders in my neighborhood since I signed my contract. One for $12,000 and another for $15,000. That's $27,000 profit and I am still over 2 months from closing. All I had to put down was 3% of the total which was only about $6,000. I was also wondering what the outlook was on flipping a newly built house. Also since the new house will have a 2 year warranty, it would be easy to rent out and not have to worry about stuff breaking down for 2 years since everything would pretty much be covered, then sell after 2 years for an even bigger profit. Any info or opinions?

[Valgolas]

Nowadays in CA market, builders have started incorporating clauses in contracts where you have to live in the house for one year after the closing before selling it.

What happens if you don't do this?  What is their recourse?

What if you move out because of, say a job relocation, and you lease the property with an option to buy that is execised after one year?

[Roger J]

Let's just be clear here, though.

If you're buying new properties, or pre-construction, and hoping for appreciation, it's speculation, not investing.

You are betting on forced appreciation to make you money.  Betting, ie, gambling.  Which is okay, don't get me wrong.

Just don't want to confuse speculation with investing.

Raj

[Deadbolt]

Let's just be clear here, though.

If you're buying new properties, or pre-construction, and hoping for appreciation, it's speculation, not investing.

You are betting on forced appreciation to make you money.  Betting, ie, gambling.  Which is okay, don't get me wrong.

Just don't want to confuse speculation with investing.

Raj

Good point.

[Valgolas]

That is a good point, Raj.

Ordinarily, I wouldn't do this.  But I almost did it by accident a couple of years ago when the markets started getting hot around here.

My wife, who knows real estate inside out, decided that we were so prosperous that we should build the dream home that she always wanted.

I'm was happy with our old home, but she wanted a new one.  

Guess what?  She found a builder and a property and a plan that she thought was perfect.  It's amazing how fast she accomplished this.  The contracts were signed, (I almost became ill) and the constuction began.

Almost a year later, after many ordeals with three different general contractors, the house neared completion.  I was making a final walk-thru with inspectors and the general contractor and some other people who showed up on the site.  I thought these last people belonged to the city or the contractors, but I was wrong.  After the others left, these unknown people approached me.

Guess what?  They were a couple who had fallen in love with the house that I just spent a year building, but had not closed on yet.  They wanted to buy it from me on the spot for $60K more than my total price.  They had a contract filled out, a mortgage commitment letter from a lender that I knew, and a bank statement to show me they had the funds for the downpayment.  They were even going to give me a check for the earnest money.  Wow!

Now, just so you will know, I was not very excited about moving into this new house, so this seemed great to me!  I called my wife to tell her the good news.  And how do you think it went over?

Right.  So... I'm typing this in nearly the very spot that I almost made the deal to sell to the other couple.  My wife is asleep in her dream bedroom, and I didn't get the divorce I was promised if I sold the house as I almost did.

But I often wondered if I should contract for another one to be built, just to sell it to some deserving family who just can't wait a year for a house to be constructed.

[lcatalano]

I know several people who have done this in NE FL.  I haven't done this yet for my investors, but we are looking into it.  My understanding is that you need a) the contract to be assignable and b) the permission of the builder to market the property prior to closing.  

I've heard builders in our area are starting to get tougher on investors and are requiring the initial  buyer to close.

However, you can still see in our MLS system properties with the same address (different MLS #'s) where one is pending and the other is active.  

Good luck!

[Roger J]

Jeez, will people please stop calling this investing?   lcatalano, if you have people wanting to do this, then it's not investing, it's speculating.  If they don't like to be called speculators, then refer to them as gamblers, because gambling is what they're doing.

Again, no problem with it per se if that's what you want to do with your money.  If you educate yourself in the market (just like learning the game) and know what you're doing, you might actually make some money.  But please, just call it what it is.

Personally, I'd go to Vegas first.  At least there, you've got better odds of winning.

Raj  

[lcatalano]

No need to get your shorts in a knot, Raj!  As far as I'm concerned, my customers generally fall into two categories--owner/occupants or investors.  I use the term loosely--if they are not purchasing a home to live in--they are investors (sometimes investing, sometimes speculating).  

Although I agree with you that it is "speculating", I prefer not adding another category to my customer description.  

[Roger J]

Leona,

You can call your customers whatever you like, doesn't really matter in your office.

However, on this site, there are people new to REI and I definitely do NOT want them thinking that this is a good, stable way to make money, OR that it is considered RE investing.

And I like the knot.  It makes the girls look twice!

Raj

[kdhastedt]

ROFLMAO...Great comeback, Raj!

Keith

[robertl]

That is a good point, Raj.

Ordinarily, I wouldn't do this.  But I almost did it by accident a couple of years ago when the markets started getting hot around here.

My wife, who knows real estate inside out, decided that we were so prosperous that we should build the dream home that she always wanted.

I'm was happy with our old home, but she wanted a new one.  

Guess what?  She found a builder and a property and a plan that she thought was perfect.  It's amazing how fast she accomplished this.  The contracts were signed, (I almost became ill) and the constuction began.

Almost a year later, after many ordeals with three different general contractors, the house neared completion.  I was making a final walk-thru with inspectors and the general contractor and some other people who showed up on the site.  I thought these last people belonged to the city or the contractors, but I was wrong.  After the others left, these unknown people approached me.

Guess what?  They were a couple who had fallen in love with the house that I just spent a year building, but had not closed on yet.  They wanted to buy it from me on the spot for $60K more than my total price.  They had a contract filled out, a mortgage commitment letter from a lender that I knew, and a bank statement to show me they had the funds for the downpayment.  They were even going to give me a check for the earnest money.  Wow!

Now, just so you will know, I was not very excited about moving into this new house, so this seemed great to me!  I called my wife to tell her the good news.  And how do you think it went over?

Right.  So... I'm typing this in nearly the very spot that I almost made the deal to sell to the other couple.  My wife is asleep in her dream bedroom, and I didn't get the divorce I was promised if I sold the house as I almost did.

But I often wondered if I should contract for another one to be built, just to sell it to some deserving family who just can't wait a year for a house to be constructed.

Are there really people who just can't wait  . I believe you hit the nail on the head....

[propertypete]

I understand what Raj is saying, but I think the confusion begins with the developer........they are the ones who are initially calling these speculators "investors".  I've seen some cases where they require a 5% dp to homebuyers and 20% to "investors"......anyway, this thread wasn't started to determine what we should call these people, it was started to see what people thought about getting involved with this type of situation, and I think Raj has already given his opinion, but I personally don't see a problem with it as long as you are buying through an experienced developer and you wont be competing with a million other people to flip their houses at the same time.  Im considering doing this but only to keep the property as a rental with intentions to flip a year or two down the road, and possibly pull a heloc and move on to another project.  

[Roger J]

Pete,

Whether it's a new construction or a resell property, if you're buying at retail, then you're NOT an investor, and you certainly are not investing.

Take your idea of buying and renting.  If you pay full retail for the new construction, will your rental cashflow?  Can you even rent the place at all?  Will the developer allow it?  Can you find a quality tenant when most people will be able to qualify for financing on new homes in the same area for a lower monthly payment?  How do you plan on getting a HELOC on a new purchase when you paid FULL retail?  When you try to sell a year or two down the road, will you still be competing with the developer, thus trying to sell a 2-year old resell when people could be buying similiar new homes, usually cheaper?

If you don't have the answers to any of these questions, or you don't have a solid answer to any of these questions, my suggestion would be for you to just shoot yourself in the foot and get it over.  At least that will hurt less and heal faster.

I have nothing against buying a preconstruction property IF you treat it like any other RE buy, which is to buy at a discount.  I personally know of a local investor that has bought several.  However, he bought them at $55-65 a square foot when the going resell was for $75-85 a square foot.  In case you missed that, that is a $20K profit on a 1000 sqft home.  That's pretty good.

But hey, if you live in an area where prices are booming out of control (like CA has been), then buy whatever you want, inflated appreciation will always bail people out of stupid decisions, all you have to do is watch "Property Ladder" to confirm that.

Raj