Flipping in a stable market

7 Replies

A local buy and hold investor recently advised me that margins for flipping houses in our local market (Northern Utah) are relatively narrow because the market is relatively stable and unemployment is low.  His advice was that buy and hold is a better strategy in a stable market.  Is that correct?

Robert, I flip in Northern Utah all of the time. The determination as to weather or not a property is "flip able" is more on the spread you get when you purchase the property. Most flips will make great rentals (as long as they are starter home flips), but buy and hold numbers don't make for great flips. 

@Robert Dean  , you can successfully flip in an up market, down market, or sideways market. The key is that you just have to properly recognize the trend. From that point, it is all about the spread, as @Andy M.  said, not the market. 

The best time to be a flipper is in a sideways or down market that suddenly switches to an  up market. The properties in your inventory will sell for more than you expected and you'll make a killing. 

There are two worst times to be a flipper. One is when a up or sideways market suddenly turns down. When that happens, the properties in your inventory will sell for less than you planned and you'll feel that pain.  The other bad time is in a clearly up trending market, as this draws out all of the amateurs to bid prices up to the moon, and it's really tough to buy anything if you are disciplined.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | [email protected] | http://www.PraxCap.com | Podcast Guest on Show #152

I totally agree with @Brian Burke and what you are seeing in the Utah market reflects what he said about "amateurs bidding up prices". The MLS is drying up, but the market is good and everyone wants to be a flipper. People are definitely bidding down the returns on flips and if you are inexperienced you could get burned.

Educate yourself, get lined up with someone local who is doing the business and they can cut your learning curve. Best of luck!

I'm not a flipper but I do a good deal of market watching in Northern Utah. I feel like the more speculators there are, the better as a whole it will be for the consumers/end users (in general.) you'd have a terrible time flipping off of the MLS in cache valley (I've looked) but I know guys who do flips from leads that they find off market. I've been buying and holding and there are still a lot of great opportunities for that in cache valley.

Anyone flipping in Ogden right now? I feel like there is a ton of opportunity down there, lots of very cheap real estate

@Skyler Smith  I flip in Ogden. A lot of investors in Northern Utah have a  love/hate relationship with Ogden. I made 40k earlier this year on a flip in Ogden, and I've had friends who have broke even or lost money. Ogden is definitely a place where you need to know EXACTLY what part of town you are in. South of a certain street, or west of another and you are looking at different values. You really need to educate yourself if your going to flip there.

Some familiar faces here.  Hi All.

@Robert Dean  Where are you looking specifically? I can't imagine that there would be much opportunity for buy and hold in Willard.

Kind of an open ended question with lots of ways to answer.  As the out-of-area folks have posted, market is less important when flipping because of limited exposure to market trends.  In our area, where prices haven't really moved over 5% a year in either direction in 20 years, this is particularly true.

We always look for immediate equity positions first.  This gives us multiple exit options.

We have many micro-markets in Cache Valley and because our inventory is not large, we have to approach each deal on a property-to-property basis.  Even in Cache Valley, we have several very different kinds of rental markets that influence our approach.

I'm not sure what you are looking for with regard to margins. 25+% ARV equity positions are certainly out there, but the dollars are small. Or, with higher end SFR's (over $150K), the risks are high because the marketing-to-close can easily take 90+ days. With these props, selling is the only exit because they don't cash flow with rents capping at around $1200/month. (However, lease/options do well in this space).

The bottom line is that your strategy is more dependent on your personal resources than the market here: cash position, rehab resources, financing options, available time, etc.  This should dictate your approach.  

I'll shut up now.

Wm