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.
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:
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,
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.
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.
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!
Front Range Real Estate, Ltd.
Prudential Real Estate of the Rockies
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.
- 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.
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!
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.
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!
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.
Anyone else want to chime in?
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.
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.
all the Best
Dave & Lisa
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.
Tierra Antigua Realty