Charleston real estate today...still flipping
I wrote a post about flipping houses in today's Charleston real estate market a few months ago and after viewing a different attempt at a flip this past weekend, I thought it would be timely to review the outcome of the first and talk a little about the most recent house for sale.
Remember this house? 
Purchased 11/06/06 $295,000, listed 11/21/06 $329,900, reduced 12/29/06 $322,900, reduced 2/9/07 $315,00 and still unsold after 90 days on the market. Flip...Flop.
With typical offers in Charleston coming in at 2 to 4 percent below list, an offer today would bring from $303,000 to $309,500, then deducting 5% for agent commissions brings it down from $288,000 to $294,000 and additional seller closing costs will reduce the proceeds to the flipper by another $2000. With 3 months of carrying costs, there is now no way this can turn a profit. At best, an ill conceived purchase and at worst, a big money loser and my question still is, why did they do it?
I saw this house this past weekend. Let's review the agent remarks in the MLS and my comments (italicized).
Immaculate (not unless you consider a pile of construction debris in the backyard to be immaculate) newly remodeled home with new carpet, wood (pergo laminate, not wood), and tile flooring through out. Custom kitchen includes new cabinets (they looked more like refinished), granite countertops (granite tiles, not solid granite), and stainless steel and black appliances (Frigidaire brand and they looked black, not stainless). Living room with wood burning fireplace leads to new sun room (converted from screened porch). Master bath has garden tub with a separate shower (enclosure not installed as yet). All light fixtures and fans are new (some were nice, some were ugly). Large privacy fenced backyard with in ground pool (missing liner and apparently in process of repair). Seller has spent over $40,000 in renovations (I don't see how and where this amount of money has been spent and considering the roof is 15+ years old and clearly needs to be replaced and the heating and air conditioner is likely original as well which should have been replaced as well in a good renovation) and is willing to give a $1,000 allowance for landscaping (it could cost a bit more than $1000 to merely sod the yard) with an acceptable offer.
As to the pool, I can't tell if the pool was already there and it is just scheduled for repair and about the only way the seller could have actually spent $40,000 on this renovation would have been to install a pool which would have been about the worst choice a flipper could make to add value to a house. So I'm going to go with my theory that the seller is just repairing the existing pool.
Let's look at the numbers. Seller paid $149,900 in December, 2005. Did some renovations and put the house on the market in September 2006 for $199,900, sitting unsold for about 6 months and no price reductions as yet. Let's say the seller did in fact spend $40,000 on renovations including those that are still to be completed. Pricing at $199,900 and paying real estate commissions at 5% would net $190,000, paying seller closing costs of at least $1000 reduces net proceeds to $189,000 less $40,000 in renovation costs equal breakeven. Except that it had to cost the seller something for the past 15 months to own the house so let's use $1000 per month or another $15,000 and it hasn't gotten a contract yet.
My buyers were actually a little interested because it is a nice house on a very nice lot but they weren't interested in offering anything close to the listing price. My gut instinct had the highest offer of $180,000 and to ask for a roofing allowance as well which is a significant difference from offering price and not likely to result in a ratified contract. Once again, flip...flop but for completely different reasons than the first example. The good part of this attempt was that the seller found a very nice house at a good price and was willing to add value by renovating the property. The bad result thus far likely comes from an unfinished renovation caused by possibly running out of money and the value of the renovation is not readily apparent to potential buyers.
If you are interested in buying and selling real estate in the Charleston real estate market and you think flipping a house will work for you, it can be successful even in today's buyer's market. You should however, consult with a real estate agent who can provide you with professional advice on what to buy, how to best add value and what the worst case scenario might be if the flip goes flop.