Speculators, Come Back! – “Those purchasing in a buyers’ market can reap huge rewards.”

click to enlarge
– front page article ‘Buy it, Fix it, Flip it could be smart strategy’, REW.ca, 14 Dec 2012 [hat-tip Jack, and Happy Cynic]
Those flippers look.. youngish. Summer jobs? -ed.

Excerpts:
“The BCREA notes a turnaround in housing sales next year could trigger speculators back into action. Those purchasing in a buyers’ market can reap huge rewards.”

“When the market is down, like now, is the time to be buying”, real estate consultant Ozzie Jurock said.

Cameron Muir, chief economist with the BCREA said he is confused by the “bubble hyperbole” in much of the media. “There are minimal risks ahead,” he said. … “I just don’t see any reason to fear a long term downturn in BC’s residential market”.

Flipping is the most obvious form of speculation, and not really the one that interests us the most (that remains the average buyer who overextends to buy on the premise of rising prices without even knowing they are speculating).
We are not yet in a market that is good for buyers, not by a long shot.
This could well be the very worst time in the history of the Vancouver RE market to attempt a flip.
– vreaa

88 responses to “Speculators, Come Back! – “Those purchasing in a buyers’ market can reap huge rewards.”

  1. Where were these people in 2000 when the entire NASDAQ instantly became a buyer’s market?

  2. (Actually, May would’ve been a worse time to buy. But not all that much worse.)

  3. “There are minimal risks ahead.” – CM

    That’s funny, that’s exactly what ‘ol Captain Smith said.

    [NoteToEd: When the Captain's drunk - it doesn't matter how much time the 'lookouts' warning buys... ]

  4. Ugh. Anyone sucked in by something this stupid deserves what is coming to them. Betting on houses since 2006 has been a bet that markets will not revert to the mean, or will do so only after a lot of inflation or equivalently a lot of time has passed. The government and central bank has done everything possible to drag this out, to make earlier bets good. But in doing so they’ve made the aggregate problem worse. I’m sure there will be plenty of crocodile tears whenever it blows up. The question is whether anything will be left.

  5. Real Estate Tsunami

    Honey, we raised a bunch of RE flippers.

  6. In a few years’ time, if not less, these sorts of articles are going to look as ridiculous as doctor-endorsed cigarette ads from the 50s.

  7. Substitute “canadian metro real estate” for “rocket launch”

    and market for car.
    and Feb 13 – May 13 for second stage.

  8. They also note that “six month flips have practically disappeared this year”. Is a flip with a serious negative return still a flip? Judging by the number of spec driven renos currently underway in my east side neighborhood, we’re not done yet.

  9. MY PREVIOUS REPLY DID NOT POST. AM I BEING BLOCKED?

    • No, definitely not, post released once I heard.
      As numerous posters will attest, occasional posts are put into moderation queue for no apparent reason. I apologize.
      If it’s any consolation, I’ve had a few held back myself (go figure).

  10. GUESS NOT

  11. “Small and large cities throughout the United States are outgrowing their suburban counterparts for the first time in years. An even bigger surprise: small cities seem to be outpacing suburbs and large metros alike according to new analysis.”

    http://www.planetizen.com/node/59677

  12. The picture tells me their targeting COCs.

    • They should have been featuring couple of seniors on that ladder instead of the 20 something if they really want to target anyone with the money. Slim chance the kids are going to be able to get a loan for the flip at all.

  13. RE Buyers Remorse Marketer

    two big movers in Stock speculation
    Medbox, a manufacturer of Marijuana dispensing machines

    http://stockcharts.com/h-sc/ui?s=MDBX&p=D&b=5&g=0&id=p23032691409

    AV Lux, a manufacturer of Gold bullion dispensing machines

    http://stockcharts.com/h-sc/ui?s=AVTC&p=D&b=5&g=0&id=p57629196672

  14. Cameron Muir is correct – he really is confused.

  15. Two things:
    1. Nice to see “the flippers have practically disappeared” in print. It’s a sure sign the market is toast. But it’s only partially right because many of them are still around, but instead of buying, they are sitting on negative equity getting more negative by the day and wondering how they’ll avoid bankruptcy.
    2. Getting started in flipping based on a magazine article? Come on nobody’s that gullible, are they?

  16. As much as we laugh at these “flips” there is a large industry of people who can and do renovate places to make side income. They buy a dilapidated place with “potential”, put in some materials and renovation time, and mark it up. In some cases this can be a substantial gain, even with flat prices.

    The problem comes in with 1) ending up like Froogle and finding out things don’t always go according to plan, and 2) not accounting for fluctuating land costs.

    I heard on “da stream” that someone “flipped” an 800K place for 1.3M (recently) over 18months. That is probably based on an input of $200K in renos (just a guess), meaning that there is some additional value there that commands a higher price beyond construction costs, plus land appreciation. Let’s split the difference and say land prices went from (say) 700K to 850K in 18 months, meaning the new value went from $100K (dilapidated) to $450K (complete awesome reno).

    Now imagine the opposite scenario of land prices going from 700K to 550K and the same construction value is in place. That would put end cost at 550K+450K = 1MM. In that case, only because of the “value add” of the reno, these people break even, ex carry costs, even under a falling market.

    So not saying that flipping is a good idea, but for many who think they can add real value to run-down properties, even a falling market isn’t necessarily a losing bet. The only way it works, though, is to be good at it. If you’re marginal, or worse bad, you are going to get slaughtered in a falling market.

    I wouldn’t be surprised to see people continue to “reno-flip” in a falling market, just like I wouldn’t be surprised to see people continue to buy investment properties in a falling market because they cash flow at low interest rates.

    • change your handle to @cognitavedissonance

    • The Poster Formerly Known As Anonymous

      hmmm.. Interesting.

      The latent value over and above the construction cost can be accounted for by

      1) the “virgin interior” premium for most purchasers

      2) the convenience factor of having it already done, and

      3) the renoflipper hits that magic tasteful, fashionable, ergonomic and solid feel that makes the property more than the sum of its components.

      Would this be about right?

      • yes, which is all plausible, for specific cases. There ‘flippers’ are people who are good at doing renos and will add value. The question is more whether their skill and acumen can offset bouts of land price weakness enough to take risks even in falling markets. I don’t think most people can do this.

      • The Poster Formerly Known As Anonymous

        moved to here:

        Yes. They also have to be fast in a falling market.

    • Do you really think there’s pro flippers who take on projects knowing the market is declining? If that was my thing I’d be very tempted to find another vocation waiting for the tailwind again, or move to a place without that built in headwind for the duration.

      I’m a risk/reward type, but I’d hate to work just as hard on job 2 with everything else going right, but net low-mid five figures instead of low six because of market factors that I knew about at the start of the project.

  17. “When the market is down, like now, is the time to be buying”, real estate consultant Ozzie Jurock said.

    Very true. Must buy when the market is down to reap the rewards later!

    http://www.Anonson.com – Vancouver Real Estate Agent

    • 4SlicesofCheese

      Yes, must buy.

      http://4SlicesofCheese.com – Vancouver Cheese Eater

      • Naked Official #9000

        Loyal cadre! Great post!

        “One thing I take comfort in knowing as a fellow owner of real estate in trendy Kitsilano is this; I’ve traveled across our country and others many times, I’ve visited countless major cities around the globe, and yet I’m always so relieved to get back to Vancouver. It truly is a special city. Surrounded by natural beauty on all sides, it demonstrates great urban planning, and takes pride as being one of the greenest cities in the world! Keep in mind, I’m quite biased on this topic, but I think it’s safe to say that most people would agree with the Vancouver traits that I just mentioned. There is no doubt this unique city is a special place to call home!

        What makes our houses in high demand is the fact that we’re out of space. Our physical land supply is constrained by things like: ocean, rivers, parks and mountains. Now immigration may have slowed a bit, but it’s still mind boggling when you see the number of people moving to the Lower Mainland year after year. Does it make Vancouver the cheapest place to live? No, but for me quality of life has always been one of the most important things when considering a place to call home. Our real estate market isn’t unaffordable, it’s just how much it costs to live here. Many people say Vancouver prices are too expensive, but as the old saying goes: “where there’s a will, there’s a way.”
        Remember, all markets are cyclical, the key to being successful is timing. Ideally buy low and sell high, so with that in mind now might just be the perfect time to buy!”

    • to quote that link:

      What makes our houses in high demand is the fact that we’re out of space. Our physical land supply is constrained by things like: ocean, rivers, parks and mountains. Now immigration may have slowed a bit, but it’s still mind boggling when you see the number of people moving to the Lower Mainland year after year. Does it make Vancouver the cheapest place to live? No, but for me quality of life has always been one of the most important things when considering a place to call home. Our real estate market isn’t unaffordable, it’s just how much it costs to live here. Many people say Vancouver prices are too expensive, but as the old saying goes: “where there’s a will, there’s a way.”

      Crap like that – knowing that it’s being said just to facilitate a commission – makes me want to punch that agent in the junk.

      • Ralph Cramdown

        “Where there’s a will, there’s a way,” quality of life etc.

        It’s funny, but that’s EXACTLY what mortgage brokers say about defaults and distress sales. They say people will default on any other kind of debt and cut back on everything in life before they’ll miss a payment on their mortgage.

      • Seeking knowledge...

        Where there’s a will, there are siblings and relatives fighting for the inheritance.

      • Real Estate Tsunami

        Ha,ha Seeking,
        Tell me about it.

      • Seeking knowledge...

        This is highly anecdotal. A long time friend told me his friend was squabbling over what to do with a house he and his brother inherited. Since neither of them wanted to be landlords, they decided to sell right away. I suspect they’ll be quite a bit of those in the years to come with our aging demographics. Perhaps adding more pressure on prices in the near future?

      • Ralph Cramdown

        “Since neither of them wanted to be landlords, they decided to sell right away.”

        Another great example. The bulls always say “most people don’t have to sell” by which they mean sell below cost or perceived value, and, without sellers, price discovery is effectively frustrated. But for someone who inherits, the cost basis is pretty much zilch. “What can I get for it? OK, let’s do it.”

  18. High risk is not automatically rewarded in business. Buying low and selling high is what is rewarded in business. Flipping is inherently risky, ’cause nobody can predict the market. Yes flipping can make a lot of money, but unless you have the cash to take a few hundred thousand dollar hit once in a while when you’re wrong, plus a good network of support or you are an agent yourself, the consequences can be devastating. The idea that an undercapitalized person should flip a house one at a time, and that house should be one they also rely on to live in, is a flawed strategy. Put another way one bad flip has way more than once wiped out all the gains made by the same flipper over years of hard work.

    • “flip a house one at a time, and that house should be one they also rely on to live in, is a flawed strategy”

      Unfortunately, the tax code disagrees. Capital gains on your primary residence are tax free, and so is the income equivalent of your sweat equity. Given those advantages, you have to be a high earner indeed to net an equivalent in a salaried position. And when the market is lifting all boats anyway, there’s a lot of room for error without taking a loss — It’s like training wheels.

      • UBCghettodweller

        So really, in a falling market, it’s like playing a computer game in “Nightmare” mode:

      • Well the only thing about that is there must be a gain for the tax code to save you. The strategy flaw becomes evident when you get stuck with several hundred K in negative equity with no turnaround in sight for years. Tax code not going to help there. A well funded flipper just takes the loss and moves on. The underfunded amateur either gets saddled with a lifetime of dept or goes bankrupt.

  19. Popeye the sailor man

    I did my last flip in 2005 and looked to buy another, rents did not cover carrying costs so we figured the market had reached a near top, maybe a year or two left of rising markets since most upward lifts lasted 5-7 years.

    Risk is high on a flip; our $260,000 two story with rent of $1200 and $750 just covered it self. We rented it out and worked on the outside for several months, once the tenants were asked to leave we worked on the inside. Sold for $325,000. Yay for $65K profit?

    65K
    -16K real fees
    -4K deck
    -8K finish on inside
    -2K other outside work
    -2K rent returns to tenants to ask them to leave
    -4K carry cost with no rent.
    -2K lawyer fees
    -2K Property transfer tax
    – zeroK property inspections (dad an inspector)

    25K profit-CRA share.

    Made some money but after all that work, stress, risk of capital, dealing with tenants, and no major unknowns croping up the work was marginally worth it. and that was in a rising market.

    • Real Estate Tsunami

      Popeye,
      You’re forgetting the opportunity costs.
      How many hours did you work on that flip?
      Assuming you worked 500 hours at $ 20 your opportunity costs would be
      $ 10,000.

      • Popeye the sailor man

        500 hours is about right, about 150-200hours over a few months, then a 300hour push in the last 6 weeks before listing.

        Another note is we dropped our price about 10K when we were late to list (March 15th ) in Victoria(colwood) and 4-6 other similar properties in the area were listed and we felt a bit of panic that more may list. In the spring of 2005 there was a feeling in the housing market that it might be nearing the top. Maybe that what spurred the rule changes with terms, down payments and CMHC in the years that followed?

    • Thanks for sharing. The numbers are always illuminating, and most people suppress the ” I worked my ass off and if I had to do it all over again… I wouldn’t!” stories (if I may presume). The net is so full of “I fell off a turnip truck with $5,000 in my pocket, met a nice realtor and…” stories.

      Would you consider another? How far would prices have to fall? Back to rent carries mortgage, e.g.?

      • Popeye the sailor man

        Tsunami; Yes I worked hard, and I put in lots of hours but still marginally worth it. Another Opportunity cost was I had to delay a course which delayed more pay at work which cost me about 3-4K gross. (just bad timing)

        Ralph; I would consider another, but prices would have to dip below the long term trend line in price (overshoot down), then be flat for a year at least and interest rates just above the long term Avg. Then you’re working from a stable base and less downward pressures. Or you can wait for 2 springs with growth under normal int rates and catch the next couple of years. I’m thinking winter 2016 things might be right. Wait and see how things roll out. I may never if things don’t look like a sure bet.

        When buying to flip, remember you make the money when you buy; meaning; don’t over pay, get it inspected properly and fully so no surprises, and don’t bite of more than you can chew.

        Stop flipping once the market has grown a lot fast, or gone on for longer than makes sense historically say 4-6 years. You don’t have to get in at the bottom or get out at the peak, just don’t get greedy.

        Since I work 4 weeks on and have a 4 week off rotation as a Chief Engineer (marine) I can dedicate some good time to it.

      • Real Estate Tsunami

        Popeye,
        I did a fixer upper once too. As I have a green thumb, I picked a property that needed tons of landscaping work, which I did mostly on weekends.
        For the inside, I got a contractor and just focused on the basics, no fancy fixtures or granite countertops.
        I sold 2 years ago, probably a little too early, but I cleared about 120k.
        I have to say that I got a lot of satisfaction from taking on the project and transforming a dump to a decent house.
        Now I’m a happy renter, enjoying the certainty of monthly rent payments, waiting patiently for the market to come down to earth.

  20. Popeye the sailor man

    In my mind the market should have peaked around late 2005 to early 2006 before all the rule changes, when you had to put 20% down for a second property and mortgage it over 25 years with proof of cash flow.

  21. Real Estate Tsunami

    So, now it’s the pimple faced white kids who are supposed to come to the rescue.
    Well, they are either moving to the valley or are leaving the Province altogether.
    Also, with equities shrinking, the parents are no longer able to help out.
    That leaves the Great Offshore German Hope to take up the slack again.
    But, as the previous post points out, RE in HongKong is hitting the breaking point. And when (not if) HongKong implodes, so will HongCouver.

  22. Methinks that the realtors (Muir in particular) are trying to play the “look what happened in 2008-09 card” and get the speculators, at least those that are willing to bite, all frothy again.

    The sad fact is that we are still at “emergency rates” for funds AND the screws have been severely tightened on lending here in Canada. There is no saving grace going forward, unless the BoC can inflict negative rates on bonds (which has been talked about in the US) or the government goes back to 0/40 +cash-back mortgages. However, I don’t think that we are going that later route EVER again.

  23. Vreaa, another image for you. The last sentence gives insights into how our talented youth spend their time.

    http://tinypic.com/view.php?pic=2vhvebc&s=6

    • You have got to be kidding.
      [**Jeff, please clarify: Is that the real bio, not a photoshopped joke? Where did you find it?]
      In a few years, this is the last thing you’ll see in an actors bio.

  24. At one time a friend of mine who is a realtor and I discussed how much profit would have to be in a deal to make a flip worthwhile with land transfer and realtor fees and we figured about 100K margin might be right. Problem is to find one of those properties. Every time I saw one listed it was long gone. (Listing up to generate calls but house sold)

    For rental properties even utter crap is selling multiple bids.

    In 2008 when the prices cratered my phone was ringing off the hook with people calling me to rent out their houses. Most of the flippers were basically tradesmen who were employing themselves renovating houses. Maybe there is a little extra left after, good for them.

  25. “When the market is down, like now, is the time to be buying”

    A statement so full of truthiness.

    “When the market is down is the time to be buying” is true enough and wise enough in most situations that it’s not misleading. But then sneak in those two little words “like now” and though it sounds so similar, it’s not the same statement at all

  26. My prescription sunglasses cost about $500 dollars. They are marked up several hundred times due to being subsidized by insurance companies and employers. The Canadian housing market has been subsidized similarly by way of low interest rates and favorable lending practices over the last decade. If prescription glasses ever become exposed to real market forces, the price would plummet. the Canadian housing market will one day lose the benefit of ultra low rates and loose lending standards and will inevitably have to stand on it’s own, within a more harsh, less supportive, exhausted real estate market. Do you think we are living in the midst of a colossal economic boom and the entire country just coincidentally decided to jump into the market? This real estate market has been artificially pumped up and without indefinite support it will inevitably fall back to its proper level, based on real market fundamentals. Nothing can change this, unless the government is willing to support the market forever. What are the odds of that happening?

  27. Real Estate Tsunami

    Ozzie,
    Was he no involved in some shady RE deal?

  28. God, that’s an obnoxious cover.

    • Clipart, but with the amount of paint they’re wearing, the reno probably didn’t go as well as it “could”.
      Witness applied real estate fakery/accessory to usury.

  29. #ThingsThatMakeYouGoHmmmmmmm….

    [CBC] – Gun-wielding suspect sought in 8 brazen B.C. robberies:
    Suspect targeted grocery stores and Toys ‘R’ Us filled with holiday shoppers [see embedded CCTV capture]

    “The level of violence in these robberies appears to be escalating,” said Detective Constable Joe Danieli of the Vancouver Police General Investigative Unit. “We are concerned for the safety of the public and want to see this man arrested before someone gets hurt.” Witnesses describe the suspect as white, 60 years old, and five feet 10 inches tall with a heavy build and short grey hair. During the robberies, he was wearing a baseball hat and dark sunglasses…”..

    http://tinyurl.com/d2r92qe

    And now, DearReaders…. your FridayZen…. compare the offender surveillance capture above…. to the following ‘mugshot’ of [well known local realtor].

    [NoteFromEd: Witty link to photo of a local Realtor removed because (i) a specific reference and (ii) a small fraction of readers will not see it as a joke. (i) + (ii), taken together, can induce moral outrage, threats, etc, all of which are distracting. Sincere Apologies Nem; as you know, we do our best not to censor anything on these pages. -ed.]

    [NoteToEd: Maybe, just maybe... things are a lot tougher out there for Realtors than we think, ED? Nah... gotta be a conincidence.. Right? Right?]

    • NoWorries! Writers are like unruly children, ED… In the absence of ‘stern’ editorial boundaries they will frequently run amok… Still, it was an astonishing resemblance!

  30. Royal Bank calls the ball:

    “So I think the market is – there is still demand out there, there are still people that need to buy homes, there is [new] immigrants coming into the marketplace. So there always is a base of new demand that comes in every year. You’ve seen housing start slow by 10% so I think that’s a pretty good approximation of a 10% to 15% to 20% slowing in the marketplace, but still positive, still really good customers out there buying homes and we expect growth going forward.” — David I. McKay – Group Head, Personal and Commercial Banking, from the Q4 conference call source

  31. The photo of the couple doing the renos and enjoying a well deserved green chai tea mocha latte frapachino… The one chick looks like Alyssa Milano to me. The other chick looks like Jane Lynch from Glee. Thoughts? Agreements? Disagreements?

  32. A Nightmare On Bay Street

    She s hot and she s happy. This guy is having a great time.

    But you have to pay for this, one way or another. I dont think 2 years of “couple happiness” with social success and familly cheerings worth a lifetime underwater.

    Comming soon in a neighborhood near you.

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