BiggerPockets

For those who do not know me, I have been predominantly focusing on rehab flips for the past 2 years here in my own backyard (Southern CA). In that time, I have been very successful and chose to make this my focus because fo the market conditions here: Abundance of buyers, affordability level of homes, lack of inventory, and abundance of REO properties at great discounts (if you know how to find them and get them before others).

I prided myself on hitting large profit margins, usually $50k or more per flip net before income taxes, but on occassion, could take smaller margins due to the almost guaranteed fact the home would sell instantly and for full price. Knowing this fact was derived from my knowledge of the market conditions.

Today, times are changing. Inventory levels are increasing, buyers are decreasing, and the tax credits form both the feds and the state (CA) are gone. Please keep in mind this info is based ONLY on SO CAL and does not necessarrily reflect other areas and states in the country.

What does this mean to me and other investors like me? Well for one, we can no longer take the tighter profit margins as we may not find buyers right away, we may have to deal with buyers requests for repairs, we may have to give closing costs, etc. etc. Keeping with the higher margins will allow us to have a back-up for these potential additional costs to sell/holding costs and keep us from getting into the red on any one flip.

Does anybody else have similar market condition changes in your local markets? I am quite sure that the federal tax credit going away has affected most of the buyers markets in the country.

Honestly I think that the craziness of appraisers has affected financing the most. The bank's underwriters are hard enough to please without the appraisers coming in 10% below true market value because they are trying to be "conservative."

The tax credit cannibalized some of this year's buyers from what we have seen. The greater Austin area is generally doing pretty well compared with the rest of the country from what I have seen. Kali's mass exodus due to rampant taxation and poor government is benefiting Texas in a big way and will likely continue to do so as their homeowners free the albatross house around their neck and move to greener economic pastures.

AZ has definitely slowed down compared to a couple of months back and prices are a bit lower. The only silver lining in all this is that you are more likely to get the appraisal for contract price because contract prices have declined compared to the last few months.

Where I play (<$100K east of Dallas) sales activity is down, but leasing is pretty strong.

I read an interesting article on Yahoo Finance a couple of days ago. Bottom line is that renters are expected to increase by 10 mil by 2015 (nationwide). Some other good stats in there as well - check it out. Those of us who are buying rehab properties and renting them out should be well positioned... and hopefully we will keep pace with inflation when it hits.

Not only that, but the tax credit had a large adverse affect on the pool of renters that are remaining renters - since many of the better renters became first-time buyers with the tax credit.

Don,
Your offer strategy is certainly a viable one, but may I suggest you work harder on developing relationships with TOP REO brokers and list agents, and get into deals BEFORE they hit the market, thus reducing your competition and improving your offer acceptance artio.

I personally get over 75% of my offers accepted and do not have to make 5, 10, or 20 low ball offers in hopes to get one accepted. I do this through the strong relationships I build.

Bump and update.
It is now very prevalent that market conditions have adversely changed. The buyers pool has dwindled down and number of home sales are down. Fewer pendings, more cancelled escrows, buyers asking for all repairs, more buyer credits, etc. and our hold times as rehabbers are up. Just keep this in mind.

To make matters worse, spreads are lower and profit margins tighter. The days of 70%-74% of market value (at least here in So CAL) are gone, other than a lucky homerun so you must make up for it with quantity. We have to eat so sitting on the sidelines is not the answer as far as I am concerned.