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Is it time to abandon house flipping?

Much has been said recently about the "implosion" of the real estate market. It seems every time you turn around there is a new article or news pundit spouting about the increasing weakness of the real estate market.  Certainly in many cases this assessment is correct. Many areas across the market saw rapid increases in home prices just a few years ago and are now as a result are seeing rapid depreciation. But these areas are the exception instead of the norm.

What are Investors to Do?

Many investors across the nation are trying to determine if its time to stop flipping houses for a living. In the Richmond area we are actually experiencing a healthy market. We've seen an increase in inventories and Days-on-Market times, and certainly foreclosures are on the rise. But there are buyers in this market looking for homes.

The trick we as investors need to figure out- is how do we attract those buyers.

Changing Perceptions of Value

Over the past few years it was easy to make money in Real Estate. The hardest thing we as investors needed to do was produce a widget(in this case a house) that consumers wanted to buy. Consumers were willing to spend more because credit terms were making it easier and cheaper to buy more. Consumers wanted bigger houses with better amenities.

During that time- we were meeting customer demands by doing a better rehab job than our competition. Ceramic tile and granite became mainstays in houses even in the $100,000's. We were able to attract top dollar by providing better amenities. 

But now- consumers value perceptions are changing. Less Expensive is better. Price is much more of a concern. So we are now changing our rehab strategy. We're creating high quality rehabs but using less expensive materials. By doing this we're able to provide a house cheaper than the competition.

Market Segmentation

Over the past few years all segments of the market were experiencing increases in sales. Flippers were selling houses all over the price spectrum. Today- we are seeing more segmentation in our market. Houses below $200,000...those most attractive to first time homebuyers are still selling. The next segment...$200,000 to $700,000 are pretty much stagnant. And high-end houses over $700,000 are still experiencing a steady market.

Is Flipping Still Viable?

Yes.  Smart flippers know that to succeed, we must adjust our strategy to meet the demands of our consumers. Here's a list of objectives we feel are important for anyone flipping houses in this market:

1. Focus on first time homebuyers. Stick with the $200,000 and under segment.

2. Continue to offer high quality rehabs, but don't over renovate. Consumers are more cost-conscience than ever. Make your end product as inexpensive as possible while still maintaining an acceptable profit.

3. Focus on areas you know. The more familiar you are with an area the better you can estimate renovation costs and resell patterns.

4. Have multiple exit strategies. Before buying a rehab project- think about what happens if the end product doesnt sell immediately. Can you sit by for a few months while your profit erodes? Be prepared to refinance the property and accept a lease option tenant. By selling using a lease option- you can get immediate income to cover your mortgage(and freeing up your cash) and you can typically get a higher price for your home.

5. Rentals are still big sellers. This is one of the best markets in decades to buy rental properties. Capitalize on this by rehabbing houses that can be marketed to landlords.

Mike Hogan

Associate Broker

RE/MAX Commonwealth

(804)503-0811

RVARealtor1@gmail.com

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Comment balloon 7 commentsMike Hogan • February 23 2008 10:25PM

Comments

What a great first post and I agree, this is actually still a great time to flip houses if you take precautions and don't jump the gun when buying or over improve, you still can make money. The exit strategy is certainly the most over looked step when buying an investment property and I think more investors need to ask their agent about them.

Welcome to the rain and look forward to your future posts!

 

Posted by The Friendly Home Team, Brokers - Oregon / SW Washington Real Estate (Realty Pro Oregon, LLC) over 9 years ago

Mike, thanks for suggesting that rehabbers do a high quality job. I've seen some really bad remodels, and some really good remodels. Nice to know that not all remodelers are only out to make a quick buck, but to make homes and neighborhoods better in the process.

Welcome to Active Rain! For some tips on how to get started here, check out my blog entry at ActiveRain Fast-Start Tips for Quick and Easy Points

Happy blogging and good luck!

 

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) over 9 years ago

I'm jumping in late here, I just stumbled on this post.  It's very well written I cannot believe it received so few comments.  Regardless, we have a couple investment properties and I think those are doing well, like your post says, but my husband is wanting to buy properties to flip again (which we have done in the past) and I keep telling him that this isn't the time.  I think now is a great time to buy rental properties in great areas though...buy low now and sell high in the years to come.

Posted by Real Estate Virtual Assistant (Christine Wade) about 9 years ago

Christine-

It's funny you commented when you did. I was recently thinking about reposting this. Even though it was only written seven months ago- I think the environment has changed quite a bit...for the better.  Obviously RE is a localized market...it has definitely gotten better in my area. But I'm sure its still stagnant or worsening in other places. But the points I raised in the post still hold true. You have to figure out what works. Houses still sell. Thanks for the late comment and the kudos.

Posted by Mike Hogan, MBA (The Hogan Group at Keller Williams Realty) about 9 years ago

Mike, Very good post and houses still sell at most price ranges.  We do try to stay under the 200 mark but it is very hard to find rehab type properties in our area.  There are not very many repos so this makes it hard to find the right one.

Posted by Don Eichler (Eichler Properties) almost 9 years ago

My husband and I have re-habbed and re-sold 3 properties in the past year, all sold under 90 days! I say take advantage of the great prices and make yours the best in the neighborhood, (and get a good stager!)They will sell!

Gretchen

www.creativespaceserie.com

Posted by gretchen wheeler (Creative Spaces) almost 9 years ago

I'm with you Gretchen- we're on our 14th this year...there are still buyers out there. We just have to give them what they want.

Posted by Mike Hogan, MBA (The Hogan Group at Keller Williams Realty) almost 9 years ago

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