Fix and flip window closed?

20 Replies

I'm hearing a lot of people talk about how fix and flip deals are almost impossible to find and execute these days and that the "window is closed." I assume that's because prices have risen in many markets and it is hard to find under priced deals.

But, in thinking back to 2005 - early 2007, prices were on the rise and people were making money hand over fist flipping deals. Why is it different now? Sure, harder to find under valued homes to flip, but can't you also sell them for much more now?

So what am I missing?

Window certainly hasn't closed for me or any of the other 100+ members still actively flipping...

Low inventory on the buy side. Window has closed for the panty waists!!

lmao@Mark Freeman  !!!

What he's politley trying to say is, it has dried up for those who were picking the low hanging fruit and failed to find the cheese when they moved it. 

We have 2 we are about to start and one that we close on next Wednesday and a fourth that I got a call about today --- my CPA's father passed away and they don't want to deal with renovating and realtors.  

If people want to think the "window is closed", go ahead.  For us, nothing is being handed on a silver platter, but we almost have more than we can handle at one time.  

..... You just cannot be scared of a little work in my humble opinion!

I've been flipping homes consistently since 1993, and not one year has gone by since 1997 where I haven't flipped a house (or many). Oddly enough, not one of those years passed without someone (or lots of someones) telling me it couldn't be done anymore. I'm glad I don't listen well, but I'm grateful that others do.

I hear this all the time too, not possible anymore. We have 17 houses in the rehab, flip loop right now @Brian Burke    probably has 10x that. 

We wholesaled three to other rehabbers last month, bought three the last two weeks, putting a rehabbed one on the market this friday, another going next friday.  Closing on rehab on the sell side tomorrow, got a contract on another rehab on the sell side on sunday. 

There are plenty of people who would agree with you that there are no more executable fix and flip deals in our area as well. I hear it all the time. Doesnt make it true, only mskes it so for people who havent figured out how. 

Thanks for all the great replies! Glad to hear everyone is busy flipping and things are going well.

I agree with what you guys have said and that's why I asked the question. I've always thought there are deals available to those wiling to work hard and dig deeper. I gather from your replies that if you are marketing, networking, etc there are still a lot of deals, but maybe if your strategy is only looking on MLS for low-hanging fruit those are the people saying it's too hard right now.

Are any of you concerned about a rise in interest rates slowing down your business? Does your strategy change if that happens?

Thanks again.

gather from your replies that if you are marketing, networking, etc there are still a lot of deals, but maybe if your strategy is only looking on MLS for low-hanging fruit those are the people saying it's too hard right now.

.......This is where we get 80% or more of our deals, wouldnt exactly call it low hanging fruit,  because most people have great difficulty picking it. Including the rehabbers we wholesale to. 

Are any of you concerned about a rise in interest rates slowing down your business? Does your strategy change if that happens?

my strategy would not change, an extra 2% interest on $150,000 for 6 months doesn't make a major impact on the rehab profits

The problem is that people who are only on the MLS listing push the price up for the "low hanging fruits" (blame HGTV I guess).

Get a box (go to local real estate meet-ups) to stand on, get a step ladder (develop relationships with local wholesalers), get an extension ladder (do a yellow letter campaign or get your RE license for MLS access) to get the next higher fruits. Doing all-of-the-above will make it almost seem unfair how much, and how good the"fruit" is for you compared to the MLS-only guys.The more of these "tools" that you can use to get to the higher fruit, the less competition you have driving up prices.

Originally posted by @Account Closed :

Are any of you concerned about a rise in interest rates slowing down your business? Does your strategy change if that happens?

Rising interest rates won't change my strategy at all (as it relates to flipping houses).  My strategy is to buy houses at a discount to today's prices, fix them up, and resell them at full market value.

It would, however, change my tactics.  The first thing I have to do when evaluating an acquisition is determine it's exit value.  A rising rate environment might cause me to assume that the exit value will be lower than recent comps, or after factoring in the totality of the circumstances, level with recent comps.  Or perhaps, I still might forecast an exit higher than recent comps.  The market reacts to a lot of variables, interest rates being only one of them.

Local markets react differently to changes in interest rate.  Some markets might react strongly to increasing rates, while markets such as mine where there is a lot of wealth tend to shrug it off sooner.

Those at highest risk in a rising rate environment are the amateur flippers who buy at market value because they don't know any better, hoping that values increase during the construction period such that their profit is created by the market rather than their skill. 

@Brian Burke thanks for the thoughtful reply. You read my mind as I was thinking of how an increase in interest rates would effect things from a buyer's point of view. But you are right - you just need to adjust.

I work in multifamily acquisitions for an investment fund and am looking to start flipping as a hedge to my day job. I think we have a couple more good years in the apartment world, but I'm also thinking we are going to see a year soon where rates go up 200-300 basis points in a year and the multifamily Acquisitons world shuts down until sellers accept the new reality.

I couldn't agree with you more, Account Closed . The separation is that income property is valued by the stream of income and the appetite for return (ie cap rate) and it's very sensitive to moves in rate, whereas SFR is far less correlated because the end-user buyer is buying because they like the school district and the way the kitchen flows into the dining room. Looking back in history at previous periods of increasing rates you find simultaneous increases in SFR prices. It's counter-intuitive at first, but makes sense when you talk to these buyers and find that they were desperate to get into the market before rates moved even higher and priced them out. While the buying frenzy is in full swing, on the other side of the tracks in the multifamily world, sellers are hating life because their valuation is sinking due to cap rate decompression as the cap tracks up with prevailing interest rates. All of this is a long-winded way of saying that I think you are on the right track and that I think your predictions will come to fruition.

I guess the good news is that after all of that happens SFR affordability eventually reaches nearly nothing because incomes haven't kept pace with housing debt service so prices start to suffer, people move to apartments, interest rates start to fall, and multifamily valuation rises as SFR falls. Gotta love playing the cycles, eh?

@Brian Burke  I really appreciate your last post.  I've been talking to a lot of my former colleagues and other real estate guys who work for funds or similar type firms and everyone seems to be a one-trick pony.  Which is good, I think you need to master something first and then branch out, but once you have, why not pick up another niche to be able to play the market at both ends, which I think you've done beautifully.  

I had a good run in multifamily working with a large multifamily developer in San Francisco from 2004 - 2009, but then as you can imagine, had very slow years from 2009 - 2011.  All my development and investment buddies were in the same boat, we didn't make squat for a few years.  I moved home to the Midwest and took a job with an investment fund in early 2011 and have been on a great ride for the past 3 years.  Our small acquisitions team (2 deal guys and 1 analyst) have acquired over 3,400 units in the past 3 years. 

I am in my mid-30s and have been getting approached by investors and other people who have seen what we've done here and asked me why am I not out doing it myself, which those that know me know I've always had a desire to do.  I think at this point I could, but I don't think right now is the right time in the cycle to go off on my own multifamily wise.  It seems much more prudent to me to wait out this cycle, and then potentially go out on my own and start trying to acquire deals at the next bottom versus the current top.  Many firms that start at this point in the cycle (top) don't make it through to the next one.

I've decided that instead of complaining and licking my wounds for a few years (and maybe now because I have a wife and daughter depending on my income), that I should figure out a way to make money when multifamily is slow.   I've been doing a lot of research into fix and flipping and it's place in cycles and my conclusion was that it should work during both ups and downs.  Hence my original question.  So I really appreciate this back and forth and it's made me feel confident that I'm on the right track.  

What also has occurred to me is that starting this fix and flip business could ultimately end up allowing me to earn as much (or hopefully even more) than I'm making in good multifamily years.  And, maybe most importantly, would allow me to become my own boss, thus freeing me up to work hard at flips when multifamily is slow and then be able to run my own multifamily stuff during the good times in that cycle.

I know this was very long winded but intended to be a long thank you to you with some of my additional thoughts.

The window is certainly not closed, I dont think it ever really does.  When inventory goes down, the door closes a bit, sometimes nearly all of the way.  But if there is strong demand, the investor is now forced to find new ways to get deals.  The guys who dont adapt and change to the market are the ones hurt the most when the market shifts.

not closed.

we did a fix and flip and a flip no fix.

you may have to dig deeper, but there are always deals to be made.

@Account Closed , a change in interest rates may or may not change our business.  As far on the buy side, we purchase every house for cash (in order to get the best deal possible) so the interest rates won't affect our buying. 

The big question would be, would it affect us being able to sell our flips fast enough if interest rates were to increase.  We always invest in good strong neighborhoods and spend an average of $100-$150k on our renovations (often adding additional square footage to the existing houses).  For many markets, this size reno is not that large, but in Memphis, it is significant.  I believe for most of our targeted buyers, the increase in interest rates would not make that big of difference; however, if it did, we could always fall back on the option to change them to high end rentals or corporate housing.  Although Memphis has many slum areas, there are areas (in which we try to invest) that have a demand for high end rentals.

I think it is important to be adaptable to whatever the market throws your way and to keep a positive attitude.  Why not ride the waves rather than trying to swim against it? 

We once had a house that was originally a flip, didn't sell for 2 months (depressing), got an offer for a corporate rental for 1 year for almost twice what the normal rent would have been, then ended up selling the house to the corporate renter.  The cherry on top of that was when the guy officially moved here, he needed additional corporate space and we rented him a suite in our commercial building.  ..... And to think we were bummed when the house hadn't sold in 2 months.  Life has a funny way of working out if you let it, but you have to work to make it happen!

Good luck to you!!!

@Julie Blythe

Where in Memphis are you getting such a good deal that you can budget $100-$150k in renovation and upgrades and still make a profit?  

I had a feeling you were going to say those areas!!!!

My partner and I flipped one retail on Avalon last March and made about $75k after all expenses.

@Curt Davis , shhh!!!  You are not suppose to tell our little secret ;)

Seriously, we live in Central Gardens, so we know Midtown pretty well.  It can be quite risky if you don't know where to invest.  As I'm sure you know, Midtown has its good and bad pockets.

We are about to start the largest reno we have ever done, but the house is only about a mile from my house, so I feel like we know the market and wouldn't be willing to risk so much in a neighborhood we didn't know and understand.

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