Another thread brought up the best cities to flip in, and some of the responses pointed to the areas that were hit hardest by foreclosures. My question is where do you guys see the future of flipping business in those areas going when the level of foreclosures decrease? Several top contributors on this site operate in those heavily distressed areas, and do 10, 20, or 30 deals per year. Well when foreclosure levels decrease do you expect your amount of deals completed to decrease as well?
How do you plan to combat those issues, will you expand your network, move to a new location, expand your marketing, or some other innovative strategy?
The market is already changing in Michigan. Going "shopping" on the MLS for the next best flip is all but behind us. The competition is more fierce and the deals aren't as lucrative.
As a result, I'm changing how I acquire properties. The REOs were good to me, but there are other avenues. Since I don't plan on changing markets, I have to change my acquisition strategies. (besides, in talking with several BP members at the Summit, I get the sense that these challenges are virtually nationwide).
The next best strategy, as I see it, is to direct market to private owners. These would be distressed owners who have building code violations, out of town landlords, driving neighborhoods to find vacant homes, owners who have filed for divorce (work with local divorce attorneys), Sheriff Sale properties which are in redemption with equity, and target homes which are tied up in probate.
These are just some of the ideas I've come up. As long as the rehabbers adapt to the new landscape, flipping will still be lucrative.
Seems like flipping will always be a viable option as long as you buy right in whichever state the market is in. It does seem pretty unlikely that people will be able to keep up the volume of deals as the market shifts, but in a sellers market the deals should become more profitable.
Another good option once the scales tip is to build specs. It's a low stress business ( as long as you don't over leverage and can sell your product ).
I agree with all the posts on here. In Colorado Springs, CO we are seeing almost no REO's on the MLS. And if there are any, they are getting bid up so high by owner occupants or investors paying too much! I used to do a full rehab where I replaced everything, I just did a test on a house and did a light rehab but have it on the market for less. So far it's working out and I'm getting showings and 2 interested in submitting an offer.
I think investors are going to have to change their strategies and adjust to the market. Direct mail is what I have been doing to accumulate short sale deals. This way I'm in full control of the deal and don't have any competition and no up bidding. My profits are much bigger.
There are always going to be deals out there, investors are around in a good market and bad market. We just need to adapt to the changes and change our acquisition strategies. Right now I'm trying to buy up as many cheap short sale's as possible for rentals before the short sale market disappears, but that won't happen for 3 more years or more.
Some good replies on here I thank you all for the information you put out. It seems like two of you are pushing the marketing route more, and I like your idea of marketing to get short sales Monica. The stats according to a blog by Steve Cook hints that the short sale secret is out. I like the fact that you are working to get them before they show up on the MLS. Do you know of any good posts that explain the process of finding, and negotiating short sales in more detail?
Like all of you have said I don’t see the market for rehabbing disappearing; however I do see it shrinking due to competition. And I would imagine that those investors that are/were completing 30+ deals a year may have to scale back. I would imagine they would be innovative enough to increase profits to balance the decrease in deals though.
It's tough out there. It seems like there is more competition out there than ever and less inventory. Shortsales and sheriff sales seems the most viable option.
In 2004 and 2005 there weren't many foreclosures, but flipping was very popular and competitive. Yes, prices were rising rapidly which helped make it idiot proof. The next environment will have it's own twists, but will still offer opportunity. Though, perhaps without the same volume as now. That may be good though, if the profit per deal increases. In another thread people are saying spec building is offering more profit now. That may be a good way for rehab/flippers to go.
Jon, a few weeks ago we tied up a lot in Lake Forest, CA, and put it in escrow (it's the ONLY lot available for sale) We drew up some preliminary plans, made up a brochure and put up a "take one" box, not even a sign, just to guage interest. We're now in contract to build a new house! REO's around here are for the most part all gone. Good deals are snapped up fast. Orange County CA is one of the most affluent in the country, and unemployment here is around 7%, with high median incomes, great educational system and every conceivable entertainment available, making it popular for investors, etc.
We will be building more spec buildings, from SFR to Office buildings in well located areas, should anyone be interested!
Adjusting your strategy is important, but it's also important to reassure yourself about the fundamentals.
Will people always get into financial troubles? Will they always need to move, divorce, or inherit a house? Are houses degenerating every day form the day they are built? Will people always defer maintenance? Will interior trends and even functions always change? Yes! So flipping will always be around.
Are there certain areas in a city that you may think will be the next to rebound? Here in Charlotte I am doing that right now. Lot of old family homes that have just been passed down in a protected historic district that some of us are picking up and renovating.
Because of the robo-signing issue and the proposed Homeowner Bill of Rights, California has seen a huge decline in REOs. With government policy aiming for write downs, it's hard to imagine any clarity until after the elections. Actually, we do an event where we have representatives from government, the Mortgage Bankers Association, NAR, and the Appraisal Institute, all didn't expect to see much progress until after the elections. (See isurvived2011.com, it free online in video format)
That being said, it's about someone moving your cheese. If REOs don't work, we go back to dealing with sellers directly or becoming builders. We have many friends moving away from REOs and short sales and sending mailers to homeowners again.
The future of flipping is good! Flipping takes in a pretty big swath of strategies, IMO, anything that involves acquiring an interest (in whole or in part) and turning that inventory is flipping.
Regulatory constraints are attempting to slow the process, eliminate some strategies and provide more consumer safeguards. Disclosing a purchase price and time held is not that big of a deal when you are really adding value in the market.
I'm not a fan of specialization in any method to acquire inventory, like foreclosures, a good investor can acquire a quality property from any source in the market and buy properties that aren't really identified on the market, for example; from an aging landlord who you spot cleaning out a rental or a wharehouse that has been empty for years. You need to be able to hunt to eat well in RE!
I've never seen a property that could not be improved in some aspect that would increase value. Your future in flipping will be determined by your ability to see how a property can be acquired and changed or remarketed for a profit. Think outside the box!
@Jim M. If you were asking me that question, I'd say it's a continuation of the trend over the last 15 yrs of close in city neighborhoods (that are at least relatively safe). We have no unsafe areas like in larger cities in NC. Also under and up to the median price homes. In our area it's under 200K. It slows down until 400K is pretty dead. Historic areas can be in there!
I just put my in city rehab on the market on friday (3/1 1135sqft 187,500) and have one cash offer and another one coming this evening. Yay!
The burbs have a bit longer to go. My parent's neighborhood in Durham's burbs has moved solidly from all professional to (solid safe) blue collar in the last several years. So my guess is closer and cheaper wins. Gas is killing land prices out of town (usually desirable due to mountain views).
In my opinion, there will always be plenty of deals to flip, no matter if we’re in an up or a down market. Yes the amount of available deals will decrease as the housing market gets better and foreclosures decrease. However, there will always be an abundance of motivated sellers. People will always have situations where they need to sell their home quickly. Therefore, I believe flipping is a great short and long term strategy.
Flipping is alive and well, you just have to adjust to what the market is giving you.
I've heard all this talk about no inventory and no deals, but we've bought 12-13 properties since February 1st. The majority were private seller deals but there were still 4 REO's in the mix.
There are still plenty of distressed sellers and lots of short sales out there. You just have to go find them!!
I'm seeing a whole bunch of shadow inventory that just won't come on the market..... Makes me sick seeing the homes just sit there deteriorating.... Overgrown shrubs, backed up gutters, etc, etc... Fortunately they will be outside the scope of owner occupants and that could lead to some great cash flow opportunities..
I'm trying to get lean and ready to soak up everything I can....
If it weren't for the wifey I would unload my personal home and live at my office/apartment in order to increase my borrowing ability...
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