Flipping Houses and the Velocity of a Market
Velocity – a quickness of motion.
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There’s been plenty of debate here on BiggerPockets.com over the years about whether or not fixing and flipping houses is, by definition, “investing”. I haven’t spent much time thinking about it, nor have I dove into the discussion. Truth be told, I consider myself a real estate day-trader, except the commodity I buy and sell has four walls and a roof (most of the time).
The bottom line is if I stop acquiring and reselling distressed single-family homes the money stops too. That sounds a lot like a job doesn’t it?
10 years ago I gave up schlepping camera gear for a local TV station to fix and flip houses. The plan was replace my W-2 income with profits from the sale of renovated houses. Any extra money I earned would be used to purchase cash flow producing rental properties. After 3-5 years of steady, thoughtful buying and selling I could financially retire and live off mailbox money. Everything was working splendidly until the market crashed in 2008.
In the post-boom era my plan hasn’t changed – flip enough houses to keep the lights on AND purchase enough long-term rentals to ride off into the sunset by 2018. Fortunately, I live and work in Phoenix, Arizona, a housing market with enough velocity to achieve this goal.
What exactly is housing market velocity and why does a professional fix and flipper need it to be successful? Simply put, it’s the existence of a proportionate, ample supply of distressed properties AND retail homebuyers.
Why Velocity Matters
I have a business partner and several investors that get a portion of the profits for every deal I close. Therefore, I can’t get to where I want to go flipping 6-10 houses a year. In order for me to reach my financial goals I’ve got to do at least 30-40 deals annually. This isn’t possible in a small housing market. There aren’t enough distressed sellers or retail homebuyers.
Last year, in the greater-Phoenix housing market 75,454 single-family homes were purchased and sold. In the past 30 days, 4,946 houses changed hands. Currently, there are 13,992 active listings, which means there’s less than a three-month supply. And while foreclosure numbers are down here by almost 50% year over year there are still about 3,000 new filings every month.
Talk about velocity. That’s Superman speed.
In greater-Milwaukee, where fellow BiggerPockets.com member J Scott and I started flipping houses last summer, housing stock is moving quickly there too. In 2012, 21,499 single family homes were sold and the days on market average is just 95 days in Milwaukee County.
I believe it’s possible to make money in any real estate market – and in any type of real estate market. The question you need to ask yourself is how much money is enough money?
If you reside in an area where there isn’t much housing churn then fixing and flipping houses is probably not a wise way to earn a living. You’ll either have to move to the big city or operate remotely. Both options will require some sacrifice – but what successful business doesn’t?