In the East Bay, house flipping is not for amateurs.
Despite the popularity of HGTV shows like Flip or Flop, experts say most folks should not try house flipping at home, or with any home.
Flipping, or buying a home to fix it up and sell it quickly for a profit, is a risky business for those without experience wielding a saw or getting a permit — especially in the East Bay. Oakland is the country’s worst city for flipping, according to personal finance site WalletHub, which ranked it 150th out of 150 in a study last August.
“Oakland ended up in the bottom of [the WalletHub] list because the prices are really high,” said Deidre Woollard of real estate publicity firm Lion & Orb. “I believe that’s why a minor flip doesn’t really work in the area. You can’t really make enough money to make it worth it. When you have a major flip where you are adding significant square footage, then the picture changes a bit.”
Case in point: 6209 Merriewood Drive in Oakland. Wisdom 5, a newly formed group of investors, purchased a rundown 850-square-foot cabin for $535,000 in 2016, increased the square footage to 2,001 square feet, and sold the property for a breathtaking $1,540,000 in May.
Contractor Dylan Arrants, one of the investors, excavated the lower level and replaced the retaining walls, integrating the basement into the living space to increase the square footage without making the house any wider.
Because this was the group’s first foray into flipping, Wisdom 5 encountered some problems that are typical of amateur flippers: They struggled with permits and discovered more structural work was needed than anticipated, causing the project to run over schedule and over budget.
“Yes, my clients had a learning curve, but we hit it out of the ballpark” in the final analysis, said Michele Senitzer of Red Oak Realty, who represented the investors with the purchase and the sale.
While increasing the square footage of a home results in the highest return on investment, the next biggest bang for your buck is renovating the kitchen, followed by the bathroom. But that’s only if you can afford to buy a house — even a fixer-upper or a teardown — in the first place.
High home prices likely are one reason flips were down 3 percent in the San Francisco-Oakland-Hayward area in 2017, with 1,910 flips, comprising 4.5 percent of all home sales in Oakland, according to real estate data firm ATTOM Data Solutions.
Another major flip is in store in Berkeley’s Poets Corner neighborhood at 2326 Acton St. Despite fire damage, the property sold for $880,000 in May. The fire-damaged property also hasn’t been updated since it was built in 1922, so it will require repair and remodeling, including installing new electricity, heating, and plumbing before going on the market.
“Most ordinary buyers don’t have the bandwidth to take on a project of that magnitude,” said Holly Bradford, the Marvin Gardens real estate agent who represented the seller.
Also, construction will easily take nine months to a year, she said. “That means having to pay rent or a mortgage somewhere else all the time they are paying for the work to be done.” She estimated it will cost around $400,000 to repair and renovate the house.
“Ordinary buyers have regular jobs; they don’t have time or energy to manage a full-scale rebuild. Whereas the investors have contractors, they know how to deal with the city, the permits,” Bradford said.
Woollard said, “I think a lot of people watch HGTV and [think] flipping looks fun, but it also takes a lot of know-how.”