An article just published by the New York Times trumpets the news that house flipping is popular again. Those of us who have been in the mortgage industry for the past 10-15 years know that low interest rates and loose credit standards combined with property flipping fever drove much of the housing bubble in 2003-2008. That bubble eventually burst when many “flippers” encouraged by late night infomercials promising fast and easy profits in real estate, learned that the housing game can be more difficult than what can be explained in a 15 page pamphlet written by an “expert” and costing $300.00.
The focus on flipping for too many non-experts is profit maximization at all costs. Profit driven flipping can mean short cuts, substandard renovation work and beyond that appraisal, seller and closing agent fraud involving straw buyers, inflated values, and hidden defects. It can also create scenarios where unscrupulous investors prey upon inexperienced buyers and construct impossible or fraudulent sales scenarios where everyone but the seller walk away with a serious risk of loss.
In the mortgage industry it is common to state “everything old is new again,” and when we read articles like this one today we cannot help but remember the confluence of easy credit, low interest rates, lots of available inventory and many real estate “newbies” seeking to get rich quick flipping homes for profit. Lender beware.