Are House Flipping Shows About To Make A Comeback?

I’ve been reading about an interesting phenomenon in the local (Metro Detroit) housing market.  There is currently both a buyers market and a sellers market happening simultaneously.  I would expect that this is happening in many areas around the country as the real estate market recovers.

A sellers market is defined as having less than three months of available inventory for sale.  A buyers market is having more than that.

What’s happening is that buyers are looking for move-in ready homes.  Those homes are being snatched up quickly, and are even back to the days of receiving multiple offers, some above asking price.  There is currently only a one and a half month supply of these types of homes in our area, making it a definite sellers market if your home is well kept and move in ready.

Distressed homes, on the other hand, are still in big supply.  Foreclosed properties that need work.  Owner occupied homes that have been seen regular maintenance and upkeep fall by the wayside.  Those homes are still readily available.

Meaning that buyers have the option of buying a home and putting work into it….but right now, they don’t want to.

I wonder if this means that the days of house flipping are on the horizon once again.

If a flipper can start buying those homes that people don’t want, putting money into them, then logic would say that they’d then enter the sellers market.  Provided they can get the house at a reasonable cost and perform renovations so that their total cost is lower than what they get, I would think you might see flippers back in earnest.

Some of my favorite reality TV revolved around house flipping prior to the crash.  My favorite show in that genre was Property Ladder, where a crew would follow a flipper, usually a novice, from the time where they outlined their plans and their budget, to the time where the flip was complete, showing the various progress along the way.  There were inevitably delays and budget overruns.  In many cases, the flips were successful and they made out, but in other cases, their overruns forced them to sell at a loss, or forced them to hold onto the property for a lot longer than they had planned.

I’m sure a lot of it was staged, but it made for great TV!  And, I hope that the current market re-opens that door once again.

Are you seeing the buyer/seller market condition in your area?  Would you consider undertaking a flip to bring a home into the sellers market? 

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Do You Adjust Your Home Insurance Structure Cost?

For the first few years after we moved into our house in 2007, the value of the home declined on pretty much every level.  Comparable houses went for less.  Average square foot went less.  Zillow told us it was worth less.  Even our property tax assessments told us it was worth less every year.  We didn’t trick ourselves into thinking it was worth more.  We knew darn well, just like everybody else, that it was worth less.

Well, almost everybody.

Allstate apparently has not gotten on board with the lower value theory.

Our homeowners policy is probably just like every other one in that it defines the maximum replacement cost if the structure had to be rebuilt.  This makes sense, but what doesn’t is that it has risen each and every single year, and not by a small amount.

This year, the maximum value of the house plus other structures (garage, deck, what is this, I’ll have to ask) is totaled over $120,000 higher than the value that I would expect we could sell the house for.

And that selling price includes the lot as well.

Our house is nice but it’s nothing fancy.  I know darn well that Allstate wouldn’t put granite counter tops in the event that the house or kitchen needed to be re-built.  They would pay for the same Formica counters we have now.  Sure, they’d ‘allow’ us to pay the difference, but my point is, I see no way where re-building our house would cost anywhere near the maximum value that they are reporting.

The two variables I wonder about are demolition and landscaping.  Assuming the worst, that our house suffered a catastrophic fire, I’m assuming that part of the cost would be the removal of what would be left standing to the point that they could start from scratch.  I would also assume that since the current house has grass, bushes, and such, that these would be replaced since they’d be lost during either the hypothetical fire or the demolition process.

Even with these two factors, plus maybe other stuff (re-connecting all the utilities), I can’t see any scenario where re-building our home would approach the maximum value that we’re insured up to.

So, I ask, dear readers:

  • Have you ever had your insurance provider adjust the maximum value of the house?
  • What type of savings have you achieved if so?
  • Are there other costs that I’m forgetting?
  • Am I missing something glaringly obvious?
  • What other questions or scenarios should I ask my agent when I give a call to discuss this?

We do have content coverage, which I’m fine with, and we have guest medical costs and all that, I’m strictly looking at the line items that refer to a potential structure replacement.

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Things To Think About Before Making The Big Move

Today’s post is a guest post from Kyle Taylor, who is the editor of ThePennyHoarder.com, a daily blog with weird & wacky tips on how to make extra money.

Coming up with a reason is the easy part. Looking for an adventure, running from a bad job market, getting away from a relationship gone south, heading to college, avoiding nagging parents and even just simple boredom, there are millions of reasons make people want to pull up familiar roots and start fresh in a new place.

Don’t jump out of your seat and pack the car quite yet: consider career options, geography and many other deciding factors before you take the out-of-state (or country) plunge.

Job Market and Cost of Living 

Many different dynamics contributed to the 2008 financial crisis, and the ensuing economic slump that persists to this day. Likewise, many states weathered the Great Recession better than others, and still are weathering it better today.

The Bureau of Labor Statistics lists both Dakotas, Nebraska, Vermont, New Hampshire, Iowa, Wyoming, Minnesota, Utah and Virginia as having 2012 unemployment rates at or below 5%. The cost of living varies from these top-ten states; for example, Vermont is considerably more expensive than North Dakota.

Plus, the list is dominated by agricultural-based economies (hence the lack of exposure to the real estate bubble that caused the economic crisis). Start out at an individual state’s .gov site (example: type in www.nd.gov for North Dakota) to see if you think it might be a good fit for you. From there, research unemployment statistics (also available at the BLS site), available industries, infrastructure,  and get a general feel for what the state is all about.

 Granola to Cowboy (and Cowgirl)

Life is more than career and money: don’t forget that different states are a better fit for different personality types.

Nuts and granola and outdoorsy? Colorado likely is a good middle-of-the-road cost of living fit that offers a plethora of outdoor adventures. Comfy in a cowboy hat and stirrups, and looking for a low cost-of-living alternative? The cowboy king of low-cost-of-living states, the Lone Star state, beckons you, weary traveler. But remember, Texas summers are stickier than grandma’s crusty-old fly paper (lots of bugs too, so keep the fly paper and bug spray handy). Shorts and sandals? Hawaii offers year-round balmy 80-degree sun but the cost of living and career opportunities (outside of the tourism industry) are onerous. Alaska is beautiful (especially in the summer) but is a foreboding and frigid Arctic region once Old Man Winter settles in. Is the world your doorstep?

Some Places Will Pay You to Move There

Amazingly, several cities across America actually pay you to move there. Seriously. Michigan’s Motor City entices would-be bohemians with generous college allowances or even a potential fixer-upper residence (cash from the city of Detroit to remodel it). Conditions apply (such as employment with certain companies within Detroit) but the fact still remains: you could be paid to make Motown your town. Want adventure? Alaska’s oil is black gold for state wanderlusters: The state of Alaska pays residents a nifty dividend each year, all you have to do is claim Alaska residence and U.S. citizenship and your yearly Permanent Fund Reserve oil dividend will arrive in the mail. The average dividend check is around $1200.

Camden, Maine and Curtis, Nebraska also offer out-of-staters promos and goodies. NASA is even paying people 5k per month to lie in bed (as part of a research experiment at the Houston, Texas Johnson Space Center).

So, have you made any big moves lately? How many months/years of homework did you do before you moved?

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A Bittersweet Net Worth Milestone

For the first time in over three years, I estimate that we have full positive equity in our home.

This is a good thing, but it’s bittersweet considering that we put 20% down on our home in 2007. Part of the downside was automatic and would have been in any market (see below) but that’s still a lot of equity lost otherwise.

The calculation

I estimate the top-line value (what a contract would say) of our home using four inputs:

  1. Tax estimates – The city tax bill gives the value of our home, and it’s generally been pretty accurate compared to market estimates
  2. The bank estimate – Our lender has always allowed us to pseduo-begin a re-finance application, at one point where it would give you a ballpark estimate of your home.
  3. Zillow – Even though this changes regularly, we use this as a fraction of the calculation.
  4. The ‘sniff test’ – I look at comparable sells in the neighborhood and will give a manual adjustment based on what I think is realistic based on what’s going around us.

The 7.75% catch

Now, I mentioned above that some of the drop in value is expected.  That’s simply a circumstance based on how I do the accounting.

My net worth is what I would expect to get if we cashed everything out.  Since there are selling costs associated with the sell of a house, on day one I automatically wrote down 7.75% of the expected sell value of the house, as I would expect a realtor fee of 6%, miscellaneous filing and other ‘fees’ that come about, as well as a cushion for any improvements or such that might need to be done to get the place sell ready.  Many people don’t do this, but I feel this is a more true cost based on how we calculate our net worth.

If you removed the 7.75% cushion, we were never technically underwater based on any estimates I had made.  But, we did fall into what I considered ‘treading water’ where writing off the 7.75% brought us to a negative value, meaning simply, that had we sold our house, we would have owed money after paying the mortgage, the realtor, and other fees that would have been necessary.

This has been the case in my net worth spreadsheet for the last 37 months.  But, this month we actually show that we would walk away with money.  If home values stay stable, we will continue to build this number simply by the equity we add with our mortgage payment each month. Hopefully, the value would rise on top of that and we will eventually return to having a decent cushion.

This is worrisome but it doesn’t eat me alive, simply because I never viewed our house as an investment.  We don’t plan on selling our house anytime soon, and we can afford the payments.  It might take a couple of years, but we’ll return the equity back that we put in originally, and as we continue to make payments and the principle amount increases each month, and if the market continues to strengthen (which I believe it will), equity will flow back quickly.

Either way, even though it’s small, it’s nice to see a positive number in the ‘house’ part of our net worth statement.

Really, it’s about time.

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