The hidden side of “house flipping”, i.e. the business of buying and selling apartments

The hidden side of “house flipping”, i.e. the business of buying and selling apartments

BarcelonaThe real estate sector has been witnessing a continuous transformation for years, especially with the entry of different digital agents that provide all types of services within the process of construction, sale, leasing, asset management and financing. It is known as the sector com. proptech (English abbreviation for Property I technology).

Among the many agents, there are a number of companies that have stormed the market with the promise of simplifying the buying and selling process. The business model is very simple: they buy a house, renovate it, and put it up for sale or rent. They promise agility and low commissions. In the sector it is called House flipping.

These are companies in a precarious financial situation: they raise tens of millions of euros in financing rounds – in some cases even hundreds of millions – to implement plans to buy and sell homes in record time. The goal is to quickly make profits, which are often very meager, to invest in new homes and get the wheels moving again.

However, its impact on the market is not neutral. These are services aimed at the seller and contribute, from an economic point of view, to the renewal and modernization of the housing stock, with the consequent revaluation, but sometimes they represent a headache for the buyer. Once the process is completed, the initial diligence fades away.

The main companies in this sector are the Spanish company Clikalia or the Italian company Casavo, and other startups such as Tiko or Kodit.io. All of them have managed to convince investors to take off, especially the first: Founded in 2018, Clikalia closed a €460 million funding round in 2021, the largest ever raised by a company. start Spanish

In fact, Spain was the second country in the world with the largest annual investment in this sector in 2020 and 2021, with 834 million euros, behind only the United States, which tops the ranking with 5,889 million euros, according to data from Real Estate. Agents (API) of Catalonia.

The dark side

They all seek to attract potential sellers with the same promises: make an offer for your apartment within a few hours or days, and even buy it in a maximum of seven days. Instant payment. This can be seen in their webpages, which contrast with the reviews many customers cast on major review platforms, where negative comments pile up by the dozens.

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“It's a sector that's growing a lot. They're companies that make a lot of money and have a good basic plan: buy, renovate and sell. They've grown so fast that they're making a lot of money, they're buying at a fair price to renovate and sell, and they're looking for cheap builders that will guarantee them a high volume of work.” Large, even and simple renewals because the margin is very small,” he explains to ARA Personal shopper Real estate and Nexitum co-founder Jordi Clotet.

This expert points out that it is a good option for the seller, because despite paying at a price below market cost, he is doing so in cash. The problem lies with the buyer, who often faces incomplete renovations and non-existent after-sales service. This newspaper spoke to six people, from buyers and neighbors to property managers, who have been affected by the practices. He also tried to contact Casavu and Kalikalia to no avail.

Nyaps and no after sales service

Joan decided to buy an apartment in Barcelona through Casavo, a rental company. “The first thing I saw was that they were in a hurry to sign,” he explains. Once the purchase was completed, when he entered the apartment he found appliances without electrical fixtures, a dishwasher without a drain, an incorrectly installed boiler, and a window that did not close.

After Cassavu found out, he had to repair the damage for thousands of euros out of his own pocket. But that was not all: they made repairs with perforated electrical installations. “Everything was a disaster, and the worst thing was the lack of interest. They disappeared and never answered again,” he laments.

“Casavo is not acting in bad faith, and I understand that it has surrounded itself with low-level companies. There is a network of subcontracts,” explains Guillermo to ARA, who bought an apartment in Seville with this company a year ago and is one of them. He is still fixing the problems he found there, such as an uneven floor, a broken curtain, an electrical panel with security systems not properly connected and other problems.

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“I was told they would fix the problem when I bought the house, and after seeing different movers passing by, I couldn't reach anyone from Kasavu. The people who sold me the apartment three days later told me they were not working.” There,” he explains. Finally, a subcontracting company in Malaga took care of some repairs. “They did what they could,” he adds. They told me they were coming to Seville to solve the same problems for four or five houses sold by Casavu.”

Lack of permits and inspections

For Thomas's daughter, this problem cost her an inspection by the Barcelona City Council. Bought an apartment in the Horta area of ​​Barcelona. They went to see it when it was under construction and when they were handed the keys, they realized they had left a lot of things unfinished. They bought the apartment in Kalikalia.

“When we opened the heater, water was coming out of the radiator and then we saw that it was a defect in the installation: they had only put one pipe in when there were supposed to be two pipes, one to take the gas and one to suck in the air.” From the outside. It's a clear example that they didn't know what they were doing,” Thomas explains. During the renovation, they also cut the apartment's shared antenna cable. Suddenly all floors were left without a TV signal.

The biggest problem came when, at the end of 2021, before the contracts were signed, the Barcelona City Council carried out a work inspection, following a complaint from a neighbour. A few weeks ago, they received a notice from the council of a fine because the business was not legal. “We don't know if they can be legalized. Kalikalia is silent on this issue and they never responded,” says Thomas, who regrets that the council pursues him when there is a report attesting to the inspection. Before signing the roots. He adds: “It is shameful that the city council is acting against the weakest part.”

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Berta, a property manager in Getafe, had a similar situation, where Calikalia bought an apartment and started working without notifying the community, which is against the law. “Until I threatened to file a complaint, they did not pay attention to me. They did not have a work permit,” he explains to ARA. The main victims were Anna's parents, the downstairs neighbors, who suffered from dampness and flooding.

“When we told them, they fixed the pipes, but they had to cover the damage to our apartment and they stopped responding. I spoke to an expert and he told me to deal with my insurance company because I had seen similar cases. He always adds the same thing. He confirms that overnight Kalikalia and the workers disappeared The company subcontracted to do the repair: “I asked who they worked for and they refused to answer me. “And no one showed up again.”

Not far away, in Mostoles, Carlotta bought an apartment at a competitive price. The seller was Klekalia, and when he entered the apartment he found a broken window. “I told them and they sent a repairman who set me up with a table, a table!”, he explains to ARA. He added: “They did not even give me the garage keys, the remote control, or the urban keys.”

Outside the housing law

In the midst of negotiations over the new government housing law, which was approved in June last year, Podemos proposed imposing a new tax on housing sales that take place less than two years from the time of their purchase. The initiative aims to end House flippingdid not flourish.

The same training argued that this practice positions housing as another financial asset, rather than a basic necessity. The proposal was part of its framework program for the municipal and regional elections scheduled for May 28, and bets on imposing a tax on the seller at the rate of 20% of the sale price, unless he claims reasons for force majeure.

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