Americans still think they can make money flipping houses • Hacker News Board

Re: Americans still think they can make money flipping houses

#81

Post by ekianjo » Sat, Jul 09, 2022, 1:15 PM UTC

smt88 wrote: post #47

endisneigh wrote: post #30

Earlier quoted context omitted.

What area are you referring to where housing was understood to be a depreciating asset? Though that’s true in the literal sense, there are only a handful of instances in American history where they was empirically the case. Not to mention you don’t specify a locale which is the most important thing in real estate, heck, these days perhaps a neighborhood.

In much of the North and Rust Belt of the US, houses declined in real dollars between the heydey of the mid-20th century and now. Detroit is a good example.

bad example because Detroit became a shithole with no job opportunities. of course housing goes down if the area around it becomes a living hell.

Re: Americans still think they can make money flipping houses

#82

Post by jmyeet » Sat, Jul 09, 2022, 1:16 PM UTC

Whoever wrote this doesn't really understand what they're talking about.

Side note: this is written in 2019. Can we update the title?

First, terminology. "Flipping" houses has a completely different meaning. The author mentions buying a house and "flipping" it 5 years later. That's not what flipping is. Flipping is short-term and typically means rehabing a property. Done quickly, you can make a profit on this if you're good and can control your costs and keep to short time frames. People do pay a premium for finished products and/or just don't want to deal with the headaches of massive renovations.

Second, the author makes the same mistake every pro-stocks author makes and completely ignores leverage and borrowing rates. 1-2 years ago you could get a 30 year fixed mortgage as low as 2.5% with an 80-95% LTV. Try getting that on any portfolio. Houses don't have margin calls either.

Third, this was written in 2019. A lot has happened since then. The 2006 to 2022 housing situation is radically different.

Fourth, the national average of house price growth over that period isn't really meaningful. This isn't stock-picking as the author alleges. Just narrow it to greater metro areas with low unemployment, a growing population (even modestly so) and relatively low state public debt (ie not Illinois) and the picture is radically different.

Fifth, real estate tends to be a very good hedge against inflation. We're seeing that now. Inflation has skyrocketed and so has housing in the last year. That's not an accident. There are some systemic problems here but that's a separate topic. As someone who is trying to protect the real value of your assets, you only really care that it is could happen or is happening not necessarily why.

Lastly, property tends to be much better at generating an income than any other asset class. Gross yields of 8-10% aren't that uncommon. Getting a dividend yield like that is going to be much harder and will have much greater capital risk.

Re: Americans still think they can make money flipping houses

#83

Post by smcl » Sat, Jul 09, 2022, 1:17 PM UTC

rdubz wrote: post #40

iddan wrote: post #26

Earlier quoted context omitted.

This is exactly what happened in Israel. Everyone who bought houses have doubled or tripled their investment in three decades.

Is this accounting for inflation? 4% inflation per year (the most common estimate I see in the US) means 3x over 30 years doesn't even break even (1.04**30 ≈ 3.24). I often wonder how much people obsessed with home prices rising (in the US at least) take this into account. How much housing mania is fueled by people getting excited about gains that aren't as real as they think?

I did some very rough spreadsheet work, collecting average UK house prices[0] and rates of inflation[1] and tried to figure this out. So starting with January 2007's average price of GBP 176,758 I tried to repeatedly apply the annual interest rates I end up with:

* Jan 2007 price (inflation adjusted to 2022): GBP 243,199

* Jan 2022 price (actual): GBP 273,762

So it seems that in the UK at least the prices do seem to grow ahead of inflation. And the starting price we're talking about here is after a long, sustained housing bubble and was already quite unaffordable for many. Further still I think many people's wages have kept pace with inflation.

So looking at the raw price changes doesn't tell the whole story, but the whole story is still quite grim.

[0] = https://www.statista.com/statistics/751605/average-house-pri...

[1] = https://www.worlddata.info/europe/united-kingdom/inflation-r...

Re: Americans still think they can make money flipping houses

#84

Post by AussieWog93 » Sat, Jul 09, 2022, 1:17 PM UTC

Schiendelman wrote: post #56

civilized wrote: post #20

Earlier quoted context omitted.

So, if houses were to become investments on a massive scale, and -- as seems inevitable -- they ended up in the hands of only a few, does that change the politics of housing supply? Before, your neighborhood's voters were homeowners who benefit from rising property values; after, they're renters who benefit from falling rents. I've heard that Germany has more of this renting situation but no idea about the politics o…

Renters are so much less likely to be voters that this has little impact. In Seattle, for instance, municipal elections are on odd-numbered years. As a result, get out the vote operations that tend to increase renter turnout during presidential elections don’t have much impact on local elections. We had a vote in the 90s that reduced housing supply considerably, “Citizens Alternative Plan.” It was a February special…

This is a concern in Australia too and we have mandatory voting with a near-100% turnout.

Re: Americans still think they can make money flipping houses

#85

Post by HWR_14 » Sat, Jul 09, 2022, 1:19 PM UTC

nemo44x wrote: post #55

mrjin wrote: post #48

Earlier quoted context omitted.

There was one obvious reason: too much money was printed, for decades. Virtually unlimited supply of cheap money not only push up asset prices but also make it super easy to blindly take loans to invest in assets and make tones of money. Once you tasted the easy money, you want more and earn from hard working would look super stupid. Properties are the most accessible way of getting involved, so people flock in. It's…

Falling interest rates for 40 years wasn’t the problem. If anything there has been less demand for money which is why rates fall. Things are far less capital intensive than they used to be in many cases. Falling interest rates have been great for people as more people own homes than at any other point in history. But printing trillions more last year was a flaw. At least got physical proof that MMT doesn’t work.

>more people own homes than at any other point in history.

Not in the US, and this article is about Americans.

Re: Americans still think they can make money flipping houses

#86

Post by jaclaz » Sat, Jul 09, 2022, 1:19 PM UTC

hiptobecubic wrote: post #71

jaclaz wrote: post #43

Earlier quoted context omitted.

>The 6% commission is not really that much. Sure, because you (or your agent) managed to sell 10% more than asking price. Try re-evaluating this 6% if all offers were 85-90% of asking price, and confirm that it is not really that much.

They're saying that that's the whole point of the realtor. Obviously hiring a crappy realtor that can't find buyers that actually want your house is bad.

Personally I don't believe that an agent finds people that want to buy, one may have more contacts than another, but it is not like the sale goes over or under asked price because an agent is so much better than another, either the initial evaluation (asking price) was underestimated by roughly 10% or the local market allowed a 10% over valuation.

A good agent (as opposed to a bad one) will help (a lot) in a number of other things (bureaucracy, managing and dealing with the details, counsel - if needed - about other professionals such as lawyers and technicians, possibly help in finding a suitable contractor for renovation works, and similar) but they won't be able to raise or lower the price sensibly, the price is mainly due to the market (locally and at that exact moment).

Re: Americans still think they can make money flipping houses

#87

Post by ceejayoz » Sat, Jul 09, 2022, 1:20 PM UTC

pibechorro wrote: post #68

m0llusk wrote: post #63

Earlier quoted context omitted.

Federal Housing Administration backed loans and the mortgage interest tax deduction worked together to give a big boost to a very specific demographic slice of the population.

This is why we aught to never have subcidies or bailouts.

Perhaps, but at this point that means pulling the rope ladder up behind you so no one else can use it.

Re: Americans still think they can make money flipping houses

#88

Post by seanalltogether » Sat, Jul 09, 2022, 1:21 PM UTC

coldcode wrote: post #36

nxm wrote: post #22

Easy way to save money when selling a home is to just sell it yourself. Real estate agents are, imho, one of the most useless professions. All you need is a real estate attorney, which you’d need one anyway.

I just sold my house for a ridiculous number. My realtor got 50 people to tour the house in a single weekend, and 5 places offers and I took the one 10% over the asking price. It's not a mansion or anything, and not in some high tech city, but nice area and a bit of land. The 6% commission is not really that much. Just prepping the house took all of my energy; trying to do marketing as well would have been too much.…

To add onto this, many buying realtors will not show a house to their client that is for sale by owner. They know they won't get their cut of the commission so they leave it out of the options. They will only visit if their client specifically finds it and brings it to them.

Re: Americans still think they can make money flipping houses

#89

Post by kasey_junk » Sat, Jul 09, 2022, 1:21 PM UTC

lotsofpulp wrote: post #33

alphabettsy wrote: post #27

Earlier quoted context omitted.

It’s subsidized regardless. There are countless tax incentives for homeowners.

I was referring to taxpayers subsidizing the actual loan itself, not the act of owning a home. What are the tax incentives (in the US)? On a federal level, all I can think of is mortgage interest tax deduction, but that was greatly neutered in 2017 TCJA, and less than 10% of Americans can benefit from it. And that is a tax incentive to borrow money to buy a home, not a tax incentive for home owners. Only other one is…

The biggest subsidy is Fannie/Freddie buying 30 year mortgages with the now explicit backing of the Federal government.

If that didn’t exist there wouldn’t be 30 year mortgages. How that distorts the real estate market is a big open question but my guess is it drives up real estate prices.

Of course that has been a continuous policy decision for almost 100 years so it’s nothing new.

Re: Americans still think they can make money flipping houses

#90

Post by pzone » Sat, Jul 09, 2022, 1:23 PM UTC

saiya-jin wrote: post #10

mchusma wrote: post #4

If real estate is to be a good investment, it must become less affordable over time. The idea that real estate in general is a good investment is dangerous to our economy. The solution to housing is reducing subsidies and removing supply side restrictions. However these are not politically popular in a world where people want housing prices to go up.

Yes if everybody should live in their own real estate. There are superbly working economies where this is not true for many decades for various reasons (ie Switzerland) and they do just fine and people are happy, just focus on more important matters in life. There are many arguments against urban sprawl which is direct consequence of such approach.

Removing supply side restrictions can lead to densification instead of sprawl. It just needs to be paired with smart transit policy.