A friend of ours.. acquaintance really.. bought a $300,000 house with the intention of flipping it.
The assessment by the market is $150,000.
He paid 100% more.
He thought after 2 years he could sell it for $600,000 and buy a nicer detached home in the same neighbourhood.
What did he forget?
1. IF YOUR HOME’S VALUE GOES UP, SO DO THE OTHERS IN YOUR AREA
If you can sell your home at double its value, a $600,000 home today, will cost $1.2 million, give or take.
I call this “Idiot Logic” when people assume that they’re the only ones smart enough to have come up with this strategy, and that NO ONE ELSE would be able to see what they’re doing.
2. HE BOUGHT THE HOUSE ON CREDIT
You’d think this is impossible right? But he put down the 5% he needed for the down payment on the home, by borrowing on credit cards (19% interest) and a line of credit he already half maxed out (no idea what the interest rate is, but it sure as hell wasn’t 3%).
3. HE BOUGHT THE HOUSE WITHOUT NEGOTIATING
Full list price. He figured: “Why negotiate? I’ll just be re-selling it, what’s a few thousand here and there?”
He didn’t even bother lowering the price.
4. …AND WITHOUT SEEING IT
Saw a few pictures online, did the 360 degree tour and called it a day. Signed the papers, moved in and wanted to wait while the prices increased.
You know, I think he’s the master of Idiot Logic. I think he might even have a PhD in it.