3 Things I Learned from Watching Property Ladder: Lack of Fundamental Analysis, Misunderstanding of Construction Time Lines, and Too Many Real Estate Books.

I’m sure many of you have seen TLC’s Property Ladder show.  It is a similar show to Flip This House except I’ve noticed that Property Ladder is more willing to show flips that have gone bad.  If you haven’t seen the show the premise is simple.  Someone buys a home, has a budget and time line, and tries to get away with as much profit on a greater fool.  After mulling over the shows, I’ve noticed a common thread and psychology with many would be flippers and real estate moguls.  First, most of these people have failed to do a thorough market analysis of the area.  What would the property lease for if you couldn’t sell?  How long of a time line do you have before your carrying costs knock out your profits?  It doesn’t seem like they’ve taken anytime to be realistic.  Yes, in the last few years we’ve seen people make out like bandits but then again, they were selling and buying in an epic bubble with lax lending.  When you can sell a $720,000 home to a farmer making $14,000 I wouldn’t exactly call it financial prudence.  

Now that standards are tighter the margin of error is shrinking.  Next, most of these people have a lack of understanding of the construction costs and timelines.  Remodeling is no cakewalk.  You have the good, the bad, and the ugly when you deal with construction projects.  This one team of would be flippers were trying to flip a condo in Garden Grove with a tiny budget, a two week timeline, and an absurd amount of profits.  Guess what happened?  First, they tried to do the project themselves.  That didn’t work out.  Weeks turned into months and carrying costs started eating into their profits.  It took four months to get the property ready and the property is still sitting on the market even after price reductions.  At this point they will come away with zero profits.  They are now in negative territory.

With this same team, they openly stated that they were going to do double-digit flips in one year.  That was before their two week project turned into a four month challenge.  This isn’t common only to these flippers.  In fact, these are words taken verbatim from multiple Pollyanna real estate books.  Doing a quick “real estate” query on Amazon you will find 153,000+ books on the subject.  I assure you that you do not need that many.  I wonder if they ever thought how publishers make profits?  In fact, I’ve read many of these books, at least fifty and there will always be unforeseen contingencies that will occur that these books will fail to foresee.  The numbers never play out perfectly.  You will always hear on the beginning of property ladder a book planned budget before they actually get into the trenches.  Theory to practice is much harder. 

Lack of Fundamental Analysis

I realize that these shows are on a tight timeline and everything is hurried and for dramatic effect.  But even a basic back of the napkin calculation can tell you if a deal is good or not.  The fact that many of these shows have been running for years during the peak of the housing bubble created a mass belief that flipping houses would always be an easy process; in fact many of these shows fed into the issues we are now facing.  There are 3 simple ways for real estate valuation.  Using a combination of these methods would help many would be flippers from encountering major problems.  In addition, there is never any contingency plans on these shows.  We all know that life is unpredictable.  Hope for the best and prepare for the worst.  These folks hope for the California Lottery and prepare for the best.  My question is who in the hell is funding these people?  I’m finally starting to see some flips gone horribly bad televised.  My take is that shows take awhile before they hit the airwaves so there is a lag factor.  The major credit crunch only hit in August.  I wonder if they’ll continue airing these shows and maybe change the title to Flip this Short Sale.   After all, even Ben Bernanke in May of this year was saying that the subprime market would be contained.  I wonder if he watches Property Ladder?

Misunderstanding of Construction Process

Construction is the litmus test of this entire housing market.  When we look at major builders and see them having difficulties, you can rest assured that the overall consumer market will contract as well.  That is why there have been pullbacks in companies such as Home Depot.  All these sales of the century are now competing with your flip.  You can rest assured that builders have more of an advantage and can cut prices faster than you can say “price reduction.”  This creates more added inventory in an already declining market.  These shows will never talk about the credit crunch except as a footnote into their juggernaut of flipping homes for absurd prices.  Certain construction projects take time and you need to find the right people to work for you.  You need to have your team in place before you even undertake a project.  This one couple was using their computer and using Google to figure out how to tackle massive projects!  You can’t help chuckling as you see the guy sitting there and probably typing “tutorial on installing plumbing.”  You can’t nickel and dime these projects.  And since you’ve gutted the place and payments are now rolling in, you really don’t have much time to negotiate major construction projects.  A kitchen remodel or redoing a bathroom will take time.  Now guess what?  You are competing with home builders that have mastered the art of faux luxury and staging, so good luck on trying to squeeze out a $20,000 profit simply because you used Feng Shui.  You’ll realize why more and more potential buyers are deciding to rent than buy.  

Too Many Real Estate Books

Which bring us full circle.  I’m sure you know or have friends in your immediate circle that I like to call walking human parrots, WHP™.  Sometimes you’ll need to do a double take otherwise you’ll mistake them for a talking head on a cable show without the rectangle around their head.  Folks on these shows sound like they are simply repeating from rote memorization their favorite housing book.  There has been another bubble that I have failed to talk about but is clearly present.  There is a massive bubble in real estate books.  Since the profits in real estate have been criminal these last few years – no seriously, some companies have been so brazen they have thrown out sensitive housing files into public dumpsters – you realize that many folks decided to jump into the industry.  Staging professionals.  Luxury end realtors.  Certified kitchen remodeling specialist.  Did someone crack open a Kaplan GMAT study book and jumped to the verbal section?  When you watch these shows, get out a notebook and write down every real estate cliché you hear.  “Real estate never goes down” or “redoing your kitchen will yield a 130 percent return on your investment.”  Says who?  These rules only apply in appreciating markets.  In down markets you’ll need to remodel homes simply to move the property.  The gimmicks are running out and so is the funding.  I wonder if these shows will go the way of the subprime market?   

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14 Responses to “3 Things I Learned from Watching Property Ladder: Lack of Fundamental Analysis, Misunderstanding of Construction Time Lines, and Too Many Real Estate Books.”

  • My roommate and I were talking about these shows earlier today. We’d love to suggest a few new series for HGTV. A few titles/concepts:

    Flip Flop – usual formula but with unhappy endings/failure analysis
    Short Sale – wherein we follow a group of similar houses (perhaps all on the same street) to see how low they have to go before becoming REO.
    Cash Buyer — in which a prudent renter has saved and offers to pay a historically rational price…. buyer bids shockingly low until someone is desperate enough to accept. Alternate titles; Low Ball Offer
    Smart Renter — in which people moving into insane areas look at their options rent vs. buy and demonstrate how much better off they are renting
    House Proud — My House is Worth What? meets Designed to Sell with disastrous results.
    Apartment Hunters — like Home Hunters/Vacation Home Search but for people who have just been forclosed.

    There’s just no way that they can keep airing reruns of these flipper shows that have been on the past 3 years or so. It will look so perverse that nobody will watch.

  • I have seen during a labor day marathon- Flip That House:Updated in which the house is either still on the market after multiple reductions or in escrow. One experienced flipper overdid the personalizing and decided to move in herself.

  • It is getting more difficult to find time slots for “Sell This House”. I miss Tanya Memme–ohhhh, baby!

  • I just saw the Feng Shui episode you’re talking about – they were convinced they could do 28 flips a year… unreal. I like the Updated Flip That House, too – cautionary tales for those who still think it’s the time to jump into a new career as a flipper.

    And here’s a show I’d watch:

    Ghost House Hunters – SciFi’s Ghost Hunters find haunted properties for the young couple on a budget

  • Tanya Memme is just a bubblehead in a tank top. Roger, OTOH… woof! hello, muscle daddy decorator.

  • It looks like Property Ladder is willing to show more bad investments than the other shows (wonder who the sponsors are?). Is it any doubt that looks have the ability to sell homes? After all, that is the entire mission of staging. Make it look a certain way…a boob job for the home. Plus having a good looking agent is going to make you more “motivated” to buy or sell. I was at a local Los Angeles hangout with a few friends, you know those trendy type places, and I over heard this in a conversation: “I need to get the audition over early because I’m showing a client a condo out in the Valley.”

    I wish I were kidding but this has been going on for too long. It is about time that reality sets into this distorted SoCal bubble.

  • Tanya is the hottest thing on TV, by far! Yum!!
    The episode that you refer, with those 2 asian guys, to is a comedy.
    That one guy had his little white dog in his arms in every scene, and he’d make every decision based on a 2 and an 8, his two magic numbers.
    You can’t hold these guys up as examples, as they were clowns.
    I wonder how ol’ Richard Davis is doing these days?
    His Real Estate Pros on TLC – was happening for a while and I enjoyed watching it until I realized that he ended each sentence saying the same thing; “At the end of the day… blah, blah, blah,..”
    At the end of the day, I wonder if he still expects to expand his flipping business nationwide, as he was bragging about.
    Kristin Kemp is also a babe, but she still can’t touch that Tanya Meme!
    Yum!!!! What a babe!!!

    Ummm. I

  • Good one. I get outraged at the flip shows that calculate “profit” based only on what the all-knowing real estate agent suggests the price could be, and omit real expenses like broker commission, closing costs, and financing carrying costs.

    After doing a quality house remodel a decade ago, knowing how much time, money, and decisions it takes, I talked about but never felt like becoming a flipper.

  • They’ll just create new shows around the housing bust. Most of the show ideas vanity smurf suggested are good.

  • Tanya Memme has the kind of curves that could make a fella rush out to price diamonds, regardless of cranial air poundage.

  • Another consideration, at least here in So CAL, is how overpriced construction has been. For the last 7 years, due to the (ex)housing boom, and wildfires, contractors have been able to jack up prices through the roof! I have friends that are contractors, and this boom has been so huge, they could name their price (they are good at what they do), and tell the customer that they cant even start for several months! And customers just said OK….
    Now that the down slide has started in earnest, things will Change…Now that 80k kitchen may only add 30k to the price…..
    As for the shows….I never watch them….

  • I was always a big fan of home improvement shows back in the day … you know PBS with Norm Abrams, This Old House, Home Time, the Victory Garden. The HGTV channel started out with these types of offerings but expanded into very Hollywood-y type of programming. I’ve noticed that with the housing bubble and it’s effect on the average American/homeowner/flipper that all of a sudden what was once considered the boring stuff of hardware stores and contractors became SEXY.

    I was watching some show the other day which featured a hot babe and a hunky guy reporting on new home products from a builders show. I kept thinking, what on earth do these people know about building products? They even replaced that weird Amish-looking dude on PBS’s “the Victory Garden” with some hottie Aussie guy. I just don’t buy it.

    Whenever I see the hokey makeover shows (Decorating Cents comes to mind) I wonder if all of that cheap crap they rigged up for the cameras falls off the wall immediately after filming and the homeowner is left with a bigger mess than they started out with.

    The biggest disservice of these programs is that they never convey the stress, delays, and other unforeseen realities of remodels. There’s one show where they actually build a home in one or two weeks. When I saw it I freaked out. This just isn’t possible. It gives people a whole set of false expectations about building. I’ve never once seen a building inspector come out and shut down the project on the show.

  • I’m sure many of you have seen TLC’s Property Ladder show. It is a similar show to Flip This House except I’ve noticed that Property Ladder is more willing to show flips that have gone bad. If you haven’t seen the show the premise is simple. Someone buys a home, has a budget and time line, and tries to get away with as much profit on a greater fool. After mulling over the shows, I’ve noticed a common thread and psychology with many would be flippers and real estate moguls.

  • I’d be more optimistic if the global economy was doing fine and we are free and clear of a recession, but that is far from the case. If you look at historical pricing you’ll find there is the occasional boom followed by years of flat price growth or slight price decreases.

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