How to confirm whether a market is conducive to flipping or not?

1 Reply

Good evening all,

I am a small investor, but not a beginner because this is my second stint in the investment game. I have been a party to 7 buy, rehab and hold transactions and advised others on many more. I am also a licensed real estate agent. I know what to do, but my business is moving slow right now because I am using the method of buying distressed properties for cash, renovating and doing cash out re-fi which, as discussed in many post lately, requires that I wait 6 months for the refi. Well at least all of the lenders I know have that requirement. Then it takes a minimum another 2-3 months for me to find another property I want to move on, so I am basically buying 1 every 10 months. I want to move a little faster, especially while interest rates are low.

Anyway, that was just a little background. To increase my cash reserves I have decided I want to make my next couple projects flips and then I will get back into the buy and hold game. Here is my dilemna. As I look for properties in my target market, I see houses that appear to be attempts at flips and they are sitting on the market 6-9 months. This scares me! I like to give others the benefit of the doubt, so I want to think they did a good job on their rehab and even if the house is overpriced maybe they would have taken a lower offer by now so they could sell and move on. Maybe I am wrong..lol. I know some markets are hotter than others, but if you price a house right and rehab it properly in even a lukewarm market it seems like it should sell. It is not rural rural and the job market is stable, so people can afford moderately priced homes.

So my question is to the experienced flippers, what do you look at when researching a market? I know once you have bought and sold a couple properties in a specific area you kind of know the market and can even help set the values. But I am talking about when you first go into a neighborhood. As an agent my experience tells me that if I had accesss to the MLS in my target area I could make my life much easier because I could do a quick CMA on every property I am interested in. Then I could tell if the list price on a house is truly below market value, see what has recently sold and for how much, how long it takes houses to sell in that neighborhood, etc. However, when searching genericly I have not found the public sites to be reliable enough to depend on. Zillow is ok at best, but at times there are so many varying values stacked on top of each other in a given neighborhood, I begin to doubt the information. Based on what I just said I have reached out to the BP community for a referral to an investor friendly agent. Other than that, what methods have people used? Or is it that some areas just aren't good for flipping?

Your thoughts......

Thank you in advance for your assistance/advice.

Hi Rod, 

it's hard to tell why the flips in your town isn't selling, especially if they are priced correctly. Perhaps you could provide a link to these flipped houses sitting on the market? it would be easier to tell. It could be that the sellers are receiving offers, but just holding out for a higher price as the cost of repairs might have put them over market value. It's hard to know what goes on behind the scenes.  

Are there better markets for flipping? I think so, but it's really hard to know because timing matters as well. For example, right now, my market is pretty good for flipping but in 2011 it was awful due to a lack of buyers. The strategy then really was to buy and hold for a couple of years. So it's hard to tell if a good market is good because of geography or because of timing. 

Personally, I find flipping to be one aspect of real estate investment that needs to be pretty local. Of course, I'm saying this because my team is small. I'm sure there are lots of more experienced flippers here that flip in other states, but for my limited self, good or bad market, I have to flip locally. As such, instead of letting the market determine whether I flip, I try to find my niche in my market, and try to work on that. 

For example, knowing that my market is pretty expensive and most retail buyers need a loan, I tend to target what i call aspirational properties which are properties that fall somewhat between upper middle income and upper income. This is where i find my niche due to the large amount of cash required. However as this market is starting to slow down, I am needing to find another niche, which I think is easier than finding another market.  

Sorry not sure if my answer is kind of off topic. 

CK Hwang, Redwood Investments LLC | [email protected] | 9496329632 | http://www.redwoodinvestmentsllc.com