Market Conditions in 80501>Question Details

BoulderSuZ, Real Estate Pro in Longmont, CO

Would it be foolhardy to do a fix and flip NOW?

Asked by BoulderSuZ, Longmont, CO Sun Feb 6, 2011

I asked this question in August 2010. What prompted this question was an article that appeared in the San Francisco Chronicle. Different market. One person's opinion... and here it is:

http://www.sfgate.com/cgi-bin/blogs/ontheblock/detail?entry_…

Have conditions improved or deteriorated for a fixer? Or should fixers be prepared to rent out a place for a while before putting it on the market?

Help the community by answering this question:

Answers

26
BEST ANSWER
A fix-and-flip can work in the right market. However--for a number of reasons--you may not want to follow the "expert advice" cited in that article.

Most investors I know aren't pursuing that strategy. The reasons are multi-fold: Consumers are skittish. There's a lot of inventory out there, and there can be further waves of it at any moment. Finding money for rehabbing has gotten a lot more difficult; in some cases, the lines of credit for hard money lenders have dried up. It's more difficult for the end buyer to get financing than it was a number of years ago, so the pool of qualified buyers is smaller.

A rehabber always ought to have a back-up plan, and renting out a property is one option. However--a BIG however--a rehab is done quite differently if it's to be resold or to be rented. Specifically, the rehab will be a lot cheaper for a rental than a resale. As a result, if a rehabber had planned on reselling, he's sunk a lot more money into the property than would have been necessary for a rental.

And a lot of the advice in that article is just . . . peculiar:

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Like many a realtor we know and love, Montelongo urges us to believe that "right now is the BEST time do to real estate," but his reasoning is actually that the market is still unstable, which may not be the party-line you're used to. He says "Housing prices are cheaper than in decades, there is little to no competition in flipping, the government is giving loans to buyers (the average person does not know about this) and public perception is at a low for making money which is the BEST time to make money. Once the market stabilizes, these opportunities will be more scarce."
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
"Housing prices are cheaper than in decades?"

Oh, really? Maybe in some areas. Certainly not in others.

"There is little to no competition in flipping."

Well, maybe there's a reason . . . like less hard money available, fewer qualified buyers, and way more inventory.

"The government is giving loans to buyers (the average person does not know about this)"

Any serious buyer is going to consult a lender or mortgage broker, who will know what money is out there. I'm not sure what his point is here.

"Public perception is at a low for making money which is the BEST time to make money"

Well, if the public's perception is at a low for making money (buying as an end-buyer), then that reduces your available buyers. If he's referring to the perception of investors that now's not the time to rehab--well, first, that's not "the public." There's a difference between, say, buying a good stock cheap, holding on a few years, then selling for a profit than buying a fixer-upper, pumping $50,000 or so into it, then selling quickly while the market still is soft.

So, sure, you can make money that way. But it's a lot more difficult than some of the other strategies out there. And the rationale offered in that article just doesn't make sense.
1 vote Thank Flag Link Sun Feb 6, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Fix and Flips work in any market. The Investor needs to know how much he can sell the home for with what upgrades are selling in that neighborhood and sells in the same market as he bought in. They have to get the work done quickly and price the remodeled home correctly and it wil sell fast. It's hard to teach new Fix and Flippers not to be greedy and to always think as an Investor... no emotions about their work being better then others and trying to hold out for higher prices. Sell it, make a profit and get on to the next one.

Sandy Kinslow
2 votes Thank Flag Link Sun Feb 6, 2011
Suz, No it would not be foolhardy, I answered before and it depends on where the home is, how much you payed for the home and how much it sells for. The 3 rules of Real estate are Location, Location, Location! If you can get a home for a good price and sell for a good price in a good location it works. I have many buyers flipping now and there are "area" that are HOT now for flipping. It is basic. If you need help these kind of questions you can ask your Broker, That is what they are there for. No disrespect is given, I think this is a question a Buyer may ask, Not a trusted professional who knows the market. These questions may scare away Buyers that may contact you through Trulia? Trying to help.
Brian
1 vote Thank Flag Link Wed Mar 2, 2011
Hi BoulderSuz,

It can be a really dangerous game at the moment and for a several years into the future. There is a lot of inventory either on the market or coming on the market which will depress prices. In my opinion there are two critical issues: 1) Was it bought at a low enough price to account for the cost of repairs and carrying cost, and 2) Which direction is the local market headed? Trying to sell into a declining market is tough.

Regarding market direction you can see the price movements of the 20 largest markets per the Case-Shiller index at this web site:

http://www.papereconomy.com/CSI.aspx

You should also make sure, in the event that you can not get your price that it makes sense as a rental.


All the best,

Mike
1 vote Thank Flag Link Mon Feb 7, 2011
BoulderSuZ I don't know if it's foolhardy but the potential Flipper will have to have the finances and fortitude for the possibility this can take longer than expected and be able to hold the property for some period of time.
The mortgage industry has put up many obstacles to combat flipping and if a person is seeking serious gains they will have to document everything that was done to increase a homes value as compared to what they paid for it, tobe able to get past multiple sets of discerning eyes.
Also since a large percentage of financing is now goverment insured most institutions/investors will require that that the home NOT go into contract until the 91st day of previous title transfer.
1 vote Thank Flag Link Mon Feb 7, 2011
Fix and flipping right now is a tricky thing in the Front Range market. It would depend on the circumstances. I have known several investors that excitedly bought a property for cheap - only to find that the repairs went way over what they were expecting them to be. And after holding costs of 6 months or more, they ended up barely breaking even. So I don't think there is a huge margin for profit in this area at this time.
1 vote Thank Flag Link Mon Feb 7, 2011
If your overall investment is 40 cents on the dollar and you are prepared to wait 12 months to sell then its a great time. Example, the house can appraise for $200,000 conservatively. The purchase and rehab will not exceed $80,000. Your list price will be in the range of $170,000. This deal can work if you flip.
1 vote Thank Flag Link Mon Feb 7, 2011
Fix, rent and flip later might work better in Fort Collins area where rental demand is solid but discounts for acquisitions are not deep enough in many cases to create significant margins for return on quick flip. Better discounts are avaible for higher priced homes however the risk is also higher.

Todd
1 vote Thank Flag Link Mon Feb 7, 2011
There are still bolden opportunities in Colorado-with the right mind set and market analysis first. Ideally the person fixing the home to flip it is planning on the fixing efforts to be done at a wholesale price and is recognizing the margin for gain with realistic expectations from the beginning. There certainly are markets where fixing and holding makes more sense as well. Again only qulaity professional advise paired with a realistic outcome will create success!
1 vote Thank Flag Link Sun Feb 6, 2011
There is no one answer fits all to that question. There are too many things that can effect a flip. Not only location but how much you buy it for, what you have to put in it to sell, Then you need to know what the market is like in the price point you are trying to sell. All this and of course carring costs etc need to be looked at before you make your decision. There are properties out there but you need to do your homework.
1 vote Thank Flag Link Sun Feb 6, 2011
It all depends on where the home is? How much you buy the Home for and How much you sell it for. I have a few clients that ARE fixing and flipping with success. I am putting on on the market by the Streets of Southglenn with a big open house Saturday. You are welcome to come. 7150 S. Washington St. Centennial 80122
Brian
http://www.kennarealestate.com/fixandflip.php
1 vote Thank Flag Link Sun Feb 6, 2011
In this market with prices so low, it is a great time for investing. That includes flips and rentals. It is more important than ever to do your homework and research on the house any the area along with the potential investment return.
I am constantly seeing properties that are priced well below market value. Some only need paint and some need more than that. Inspect the home and know what it will take to turn it around.
Good luck,
Vicki Holmes
1 vote Thank Flag Link Sun Feb 6, 2011
Hi BoulderSuZ:

Might be time to ask this question again! I think the big issue for flippers right now is finding the properties to work on. With inventory still low, they have to compete with regular buyers who just want to get into a house, even if they have to fix the house up.

But there might be some possibilities for those who are inclined to do it right. One thing I would like to see is a few flippers with a sense of style. Seems like the cheap new carpet, hollow doors, mid-level fixtures, white paint and laminate floors are starting to leave buyers cold. Why not do it yourself if your just going to have to do it again anyway. Come on you flippers. Try opening a couple home magazines before you jump in. Might even hire a designer for a hour to help you pick colors!

Kind regards,
Ron Rovtar
Front Range Real Estate, Ltd.
Prudential Real Estate of the Rockies
303.981.1617
ron@rovtar.com
http://www.rovtar.com
0 votes Thank Flag Link Tue Aug 27, 2013
Fix and Flips are always good and will always be around-just need to be watchful and buy them at the right price.
0 votes Thank Flag Link Fri Jul 26, 2013
Markets are imperfect and there are opportunities to buy low under any conditions. Paying cash for a property that does not qualify for normal financing is one way to get a below market discount.
0 votes Thank Flag Link Sat May 25, 2013
|||||||||||||||||||||||||||||||||||| Memorial Day Weekend 2013 |||||||||||||||||||||||||||

The case for flipping now

You can say that conditions have improved significantly for restoration. There is at least one group that never stops restoring properties. Some people believe that historic structures are better built. This hardcore enjoys the styles that are reminiscent of days gone by. There were others that left us shaking our heads as they ventured into the flipping game, having purchased good candidates from foreclosure auction and REO listings.

The key to restoration, which I have noted in blogs, is the expertise that the property owner brings to the game. It helps to have a real estate expert guide the fixers in determining how much restoration is too much and too little - in other words, what the neighborhood market supports. But key is the expertise of the construction crew. You can borrow this expertise, if you are connected and have good relations with people who have been in the industry. Sweat equity can translate to profits, too.

Other indicators:
- TIGHT MARKET from all directions. The bottom of the market generally pushes at the top. However, the Greater Denver Metropolitan Area has pressures coming from many directions. Renters are being pushed into buying. Renters can face a long haul in a market where the highest vacancy rate is in the low single digits. This fact coupled with loosening lending can lead to more pressure as renters make the move into home purchasing.

- Realtors are very familiar with this phenomenon. There are plenty of anecdotal as well as statistical evidence to show homes in the 200s are BEING SOLD on the day they go on the market.

- PRESSURE at the low end and high end of the market. The high end can pull at lower levels of the market. This is a phenomenon that was witnessed at the height of the last real estate surge. Property owners buy smaller homes on large lots and scrape them to make room for much more expensive properties. The low end already speaks for itself. Though, the foreclosure pipe is emptying out as the economy and hiring improves.

The best advice for the flipper wannabe is DO YOUR HOMEWORK.
0 votes Thank Flag Link Sat May 25, 2013
|||||||||||||||||||||| UPDATE April 2012 ||||||||||||||||||||||||||||

Thanks for chiming in, everyone. Prices do seem ideal right now. I've seen several foreclosure homes in recent weeks that didn't seem worth the effort. HUD and anyone else sitting on a property that needs a lot of work might be sitting on those properties for a while longer. But, I've seen others and purchased one for a new buyer that looked like they will be fine with some vinyl tile and a splash of paint.

Investors live in a great world right now. Homes are still inexpensive.

Move fast, though. The low end is moving quickly right now. Fortunately, it appears there are more than a few agents ready to go to work for you, investors.

Best to all!

Suz
0 votes Thank Flag Link Tue Apr 3, 2012
2012 UPDATE

The market in Longmont is going crazy in the under 200K price ranges! If an investor can keep a home in that price range and are judicious about keeping their expenses under control, they will do very well.

Think about it - there have been large numbers of people who have lost their homes and for about 3 years are unable to purchase another. Because of that large pool of renters the rental market has gone up almost $300 per month on average in the Front Range in the past 3 years. Now - we are approaching the time when those renters are going to begin being able to qualify for FHA loans and buy again - although they will most likely be in the lower price ranges. So there WILL be a SHORTAGE of LISTINGS in the under 200K price range - we are already seeing that start to happen.

Simple math and realizing where the indicators are pointing.
0 votes Thank Flag Link Tue Apr 3, 2012
Fix-n-flips are always a bit risky, but I think this is a great time to do one, if you wait for the right property. The market here in Longmont is moving quickly in the $250k and under. If you can find the right property and get it flipped quickly, before rates go up, I think you could make a nice profit.
0 votes Thank Flag Link Tue Apr 3, 2012
Excellent points made by Sandy.
However, what is missing from this discussion is the investors investment goals.(chunker, cash flow, wealth building) What are the investors skills? What are the investor resources? There is just so much we don't know...but let's go further out on the thin ice.

Let's assume the investor has no hammer skills, no resources, and simply needs big chunks of cash, quickly and heard the sidewalks in the real estate village is covered with money for the picking. . Clearly the investor needs to know the value of real estate in the community they are working. Miss this little piece and you are going to be toast. However, there has never been a better time, most likely ever in any of our lifetimes to act on this opportunity.

Now, you need to buy real estate below wholesale and sell at wholesale. This is safe, the real estate will move fast, and really does not require the advanced skills that cause so many to fail. Keep in mind, you will be making 8 to $10,000 at a pop while the buyer will flip this and make 25 to 45 K on the same house. It would be helpful, very helpful, to actually PROVE positive cash flow for the prospective investor buyer. If you get greedy..if you reach beyond your skill set, you will be getting yourself in trouble, you will get burned. Others will be picking YOUR money from the sidewalk!

So to address your question, "..foolhardy to do a fix and flip, NOW?" It could be a good strategy, but only you know if the investor has all the skill needed. Let's assume the subject buyer is not creating cash flow or wealth building...only looking for chunks of money. This investor should find, acquire and sell, with no fix up. This would be the safest strategy for a novice. Of course there are at least a dozen other requirements to succeed, but that's beyond the scope of a Q & A. Best advise is to be mindful, "Greedy pigs get fat, then they get slaughtered."

Take little steps. Get the connections in place and by all means, get started..TODAY!
0 votes Thank Flag Link Fri Mar 2, 2012
|||||||||||||||||| UPDATE |||||||||||||||||||||

Flipping is looking more promising these days. Taking properties and putting them first on the market to rent is a good strategy. However, there might be some bank owned properties that with some work can make a great home.

I agree with Sandy Kinslow. Don't be greedy.

Best,
SuZ
0 votes Thank Flag Link Fri Mar 2, 2012
Returning to this question because rates are down a few notches and prices have slipped. Any investors out there? Buying has slowed, but renting is bound to pick up. Fixing for renting seems a good strategy for this market.

Anyone else want to chime in?
0 votes Thank Flag Link Thu Aug 4, 2011
Excellent points, Michael.

Colorado has a bit of flat lining going on. Berkshire today was pointing to a charting of inventory decline.

The very shrewd seem to benefit in these scenarios of changing environment. So, your comments are timely.

I hope the banks are cagey about the assets they are going to unload. Based on their record of late, they haven't shown a lot of concern for overall market. That is on a lot of minds.

If we get a strong April for sales, who knows? It could evaporate a lot of the sales resistance here. With real tight inventory, something has to give.

Interesting Case-Schiller chart.

Thanks for sharing.
0 votes Thank Flag Link Mon Feb 7, 2011
Some really good insights coming from this stream.

I think there can be opportunity out there. It's the finding that is the important skill. And, I agree the margins might not be there to attract just anyone off the street into the flipping biz. For a time, there were materials that were ample and available on the cheap. The same could be said for labor. Some of the assumptions in this piece might not be there anymore. Labor may be cheaper than it was five years ago and it may not. People move into other professions, relocate or go back to school. So, I'm leery on the availability of cheap labor.

Fixing up potential rentals is what I commonly hear about.

The economy is in flux. I think that means it's time to reassess, not necessarily act.

Thanks for commenting, everyone.
0 votes Thank Flag Link Mon Feb 7, 2011
Hi Boulder, We advise fixing it, without doing upgrades to yard,driveway except the usual. repair home to standard. Don't put in the finer things or quality upgrades, or nice shrubery until your ready to sell which should be by our estimate Spring of 2013 to get the most from your investment. there are too many foreclosures out there, Buyers are attracted more to foreclosures thinking there cheaper and better than regular sales. there is so much hassle with foreclosures/as is/ligations/issues however the Buyer doesn't usually care at this point and time which will reflect on your pricing sorry to say . Hold on Rent it and maintain it til 2013 at which point b4 puttin it on the market, dress it up, fix it up and sell it.

all the Best

Dave & Lisa
Web Reference: http://www.urhomerealty.net
0 votes Thank Flag Link Sun Feb 6, 2011
Like everything else, depends on many, many, MANY factors. Such as your local market, how much you pick up the property for (IE look up Trustee Sale, if you have cash this is your best bet) and can you do the fix yourself?

IF you have the cash, the skills, and iron strong "guts" then maybe. I am not being wishy washy, but again it depends on this and many other factors. I am a Realtor, I would to think I know the market here and I am hesitant to fix and flip. I do think now is an excellent opportunity for home ownership if you are going to buy your primary residence.

Good luck. You have more "guts" than I.

Spirit Messingham
Tierra Antigua Realty
Tucson, AZ
0 votes Thank Flag Link Sun Feb 6, 2011
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2014 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer