flipping in a down market

[Jason Gutierrez]

Hi all,

I'm not sure if others are hearing/feeling the same, but it does seem like we are approaching a peak in the housing market. I have no idea if it's 6 months away, 12 months away, or 5 years away but I feel like some of the signs are starting to appear. 

I know that no one knows, and for all we know the peak is 10 years away or more, but just for discussion sake, let's assume that a peak is coming soon - like in the next 6 - 12 months. 

Here are my questions:

If this were true, what would it mean for all the rehabbers/flippers out there?

Does rehabbing and flipping all but go away in a declining market?

Are there flippers that are able to keep flipping successfully in any market?

Thanks for any comments you all might have.

[Chris Vaught]

Jason,

From my understanding, the last recession had a huge impact on some of the flippers here on BP.  For some, they realized they were being a little too careless when the market was hot and relying solely on appreciation - they realized they needed to sharpen their pencils a little more to ensure their numbers were on point.

Other people who are really good flippers here really got their start during the recession. Lots of houses at very low prices. Sellers understand slow markets mean not many offers, so they jump at any offer that comes through. While not many people can find quality deals on the MLS now, I understand they were almost plentiful during the recession.

While the numbers will be slower, there will still be people that need to move for various reasons and if you buy at the right price and sell at the right price to beat the competition, you can still do it.

[Andrew Michael]

As an investor, its all about positioning yourself.  There are ways to make money in every stage of real estate cycles.  Personally I think we are at the peak again.  Wholesale inventory is down and the competition for flips is pretty stiff.  DC prices are going crazy in some neighborhoods the last few years and I suspect there will be a correction in the near future.  I would consider @Russell Brazil to have far better insight on the matter both locally and nationally so maybe he can share his opinion.  I am by no means a market expert just my observation.

For me personally, I have shifted my focus to maximizing my current rental properties incomes and am getting cash heavy.  I welcome a market pullback or downturn because I see my rentals as a nice hedge/ cash generator during that time and I plan to pick up several discounted properties once prices are down.       

[Russell Brazil]

Originally posted by @Andrew Michael:

As an investor, its all about positioning yourself.  There are ways to make money in every stage of real estate cycles.  Personally I think we are at the peak again.  Wholesale inventory is down and the competition for flips is pretty stiff.  DC prices are going crazy in some neighborhoods the last few years and I suspect there will be a correction in the near future.  I would consider @Russell Brazil to have far better insight on the matter both locally and nationally so maybe he can share his opinion.  I am by no means a market expert just my observation.

This opinion is regarding my local market of the DC metro area. Here is why I dont think we are at a peak. 10 years ago when I was writing offers for clients, the majority of them were zero down deals by people who could not afford the properties. Today the majority of offers I am writing are all cash offers from high income, high networth individuals. An absurdly high percentage of transactions in the DC area are all cash transactions. Now sure if interest rates were to go up significantly in a short period of time, we should see some downward pressure on prices. Or if the economy took a turn for the worse we could also see downward pressure on prices. But that just creates more buying opportunities.

The fact is almost no one can predict the peak of any investment cycle for any asset. Sure there are always going to be a few people who can, but the fact is 99.9999% of people, no matter how smart you think you are can not see that peak, and can not predict what would happen after a peak.

But in terms of flipping, as long as it isnt a black swan even where prices are declining 50% in a year or two, which by the way is likely only a once in a lifetime event, then you can still flip in a slowly declining market.  With prices down, it means that prices for non-rehabbed homes and rehabbed homes are both down, so that margin between the two should still exist in some form. In any market there is going to be areas where that margin is better than in others, so you would just need to focus on the areas of the market where the margin is the largest. Maybe the margins shrink a little, but the astute flipper should still be able to make money doing what they do.

One another note....if there were some big economic collapse like we saw a decade ago....that is not something to fear. Instead that needs to be viewed as opportunity.  I am a big Buffet guy and I really do believe in the idea to be greedy when others were fearful. When our market collapsed I bought as many properties as I could, and now 5-7 years later Im sitting pretty because of it. I also threw as much money into the stock market as I could during the collapse. But that was probably a once in a lifetime opportunity. But who knows, maybe we will get lucky again with a collapse in prices.