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

Re: Americans still think they can make money flipping houses

#101

Post by metacritic12 » Sat, Jul 09, 2022, 1:33 PM UTC

jmyeet wrote: post #82

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'…

Absolutely agree with your analysis above.

The econ of the article's analysis is rubbish. She compares indexes that exclude dividends, cherry picks time periods, doesn't seem to command basic econ understanding.

There are lots of good reasons to critique house flipping, like she could have: - Given statistics on average returns of house flippers. - Show how naïve investors and flippers get burned. - Even a piece of ancedata about one couple getting burned is at least real news.

But she doesn't do any of that.

Re: Americans still think they can make money flipping houses

#102

Post by inglor_cz » Sat, Jul 09, 2022, 1:33 PM UTC

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

I sort-of agree and sort-of no. These are my objections:

First of all, we should separate the value of the house from the value of the land, which is determined by its location. In my country, brand new houses in Ostrava (a rust belt city where I was born) cost about half as much as brand new houses around Prague (the capital), even though they are of the same size, on same sized lots, built from the very same materials by the very same Ukrainian gastarbeiters according to the very same technical standards etc.

This isn't just pure gamble, but reflection of the fact that Ostrava isn't particularly attractive for employment even for the natives, while Prague is a major hub attracting professionals from the entire Slavic half of Europe and even some Westerners. An order of magnitude, if not more, people want to move to Prague than to Ostrava. This must have an effect on the land value.

Second, the quality of the house matters. A wooden Japanese-style house depreciates quite fast. A modern brick house built to strict specs will outlast you and your kids, so the material depreciation is much slower. It might even be slower than pure inflation.

Re: Americans still think they can make money flipping houses

#103

Post by ryan93 » Sat, Jul 09, 2022, 1:33 PM UTC

gonzo41 wrote: post #75

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

It's a massive failure of neoliberal economics that this has occurred. Mortgage prices, along with the cost of electricity are two massive handbrakes on economic growth and potential productivity. Yet somehow the banks and power companies have captured the public to make people think that paying a million dollars to the bank is a great way to live. It's just crazy.

You have to get government approval to build. What are you talking about?

Re: Americans still think they can make money flipping houses

#104

Post by llampx » Sat, Jul 09, 2022, 1:34 PM UTC

nemo44x wrote: post #72

yvan-eht-nioj wrote: post #70

Earlier quoted context omitted.

"...more people own homes than at any other point in history..." I'm not sure about elsewhere, but rates of home ownership in Australia have declined since the 1980's [1], neatly coinciding with a decline of interest rates [2] and a rise in house prices as a proportion of income [3]. [1] https://www.aph.gov.au/About_Parliament/Parliamentary_Depart... [2] https://www.rba.gov.au/statistics/historical-data.html [3] http…

Look at total numbers.

Care to elaborate why absolute values are better than rates here?

Re: Americans still think they can make money flipping houses

#105

Post by Retric » Sat, Jul 09, 2022, 1:35 PM UTC

epistasis wrote: post #59

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…

Every modern bank loan is "printing money" because there is no amount of corresponding money that the bank is actually loaning out. The bank must survive stress tests, but not have actual deposits on hand for the amount loaned out. However, even if the bank needed to have deposits or collateral on hand, to stop the "printing money" aspect of new loans, this same thing could happen because homes are collateral on mort…

Banks do need cash on hand to hand out loans, they don't need cash on hand for deposits. However, they can sell old loans to get money for new loans.

Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.

Re: Americans still think they can make money flipping houses

#106

Post by toomuchtodo » Sat, Jul 09, 2022, 1:39 PM UTC

m0llusk wrote: post #67

chrisseaton wrote: post #42

Earlier quoted context omitted.

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

Take just the roof alone. On a typical house roof replacement is at least a few thousand dollars and for a nice house in an urban area it will cost at least ten thousand and maybe much more. Even with good materials and installation roofs stay in good condition for around 30 years and become completely degraded in around 50. Some napkin math for a common and kind scenario is another $10k roof every 30 years which is…

An asphalt roof with dimensional shingles on your average house in the sunbelt will set you back $10-15k every 15-20 years, more if significant amounts of decking need to be replaced.

From a building sciences perspective, if possible, I almost always recommend a standing seam metal roof due to a 40-50 year lifetime (and you can mount solar panel racking to the standing seams without penetrating the roof).

Re: Americans still think they can make money flipping houses

#107

Post by synu » Sat, Jul 09, 2022, 1:41 PM UTC

blululu wrote: post #57

chrisseaton wrote: post #42

Earlier quoted context omitted.

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

Pretty much every capital asset depreciates. Even with basic maintenance everything wears out over time. Only legal entities are immune from the ravages of time.

My house was built in 1650 and doesn’t take much maintenance at all. Definitely not more than the equivalent in rent I’d pay for it.

Re: Americans still think they can make money flipping houses

#108

Post by s1artibartfast » Sat, Jul 09, 2022, 1:41 PM UTC

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.

>If real estate is to be a good investment, it must become less affordable over time.

False. Value can increase if gdp increases without changing the %income spent on housing.

If house prices double while salaries double, affordability is the same but dollar value still went up.

Re: Americans still think they can make money flipping houses

#109

Post by giaour » Sat, Jul 09, 2022, 1:42 PM UTC

chrisseaton wrote: post #42

m0llusk wrote: post #18

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wa…

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

The overall value of a "house" is the value of the structure plus the value of the land, and it's common for the former to depreciate while the value of the latter increases. Construction costs have gone down over time (adjusting for inflation), and most building materials degrade.

When I was looking for a house in Seattle, many of the $800K bungalows were sold with the expectation that the buyer would level the existing house and build something new. During the same time frame in the rust belt (particularly Detroit) , however, many housing parcels were sold for less than the value of the structure due to the undesirable location of the land.

Re: Americans still think they can make money flipping houses

#110

Post by synu » Sat, Jul 09, 2022, 1:43 PM UTC

CogitoCogito wrote: post #66

chrisseaton wrote: post #60

Earlier quoted context omitted.

> Even with basic maintenance everything wears out over time. There's basic ongoing maintenance yeah, but I don't think that counts as deprecation in any sensible way does it? If you keep your oil paintings in a mouldy cupboard they'll rot, but we don't say art is a deprecating asset because of this. You just make sure they don't rot and clean them every now and again. Houses can stand for hundreds and hundreds of ye…

> As they get older they get more valuable because people like older buildings for aesthetic reasons. Is this really true in general? I mean sure I can find examples of it being true, but it's kind of assumed that many of the old houses in my parent's neighborhood of San Diego are teardowns whenever a buyer comes interested.

Maybe it’s something with the way houses are built there? I am in a smaller old city in Europe and I’d say the majority of houses around me are about as old as the US, or a little older, and it’s not all about to fall down (or even close).