Investor bids for fixer upper properties have plummeted

Scottsdale, Arizona
Market Trends & Data
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Investor bids for fixer upper properties have plummeted

Joey Chrisman
Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes

Amazed at how fast the market has shifted. It seems like many flippers in the Scottsdale/Phoenix market are getting caught naked as the tide goes out as Warren buffet says. Was looking at an auction property on the mls listed at $300k starting bid. The owner of this property paid $643k in March of 2022 and gutted the property expecting to flip it. Apparently they must of thought the market was going to continue to be strong regardless of what rates do. Fast forward to today and they decided to see if other investors would take their "investment"/problem first they listed it on the MLS for 700k to no luck and then recently put it up for auction on the mls at $500k starting bid. There was no interest so the auctioneer lowered it to $300k start price and the property was bid up to $360k. The auction was non binding and the sellers did not accept. It sure seems like any investors with cash now to buy properties that require a big rehab are no longer being anywhere close to as aggressive as they were just a few months ago. 643k to 360k is a crazy fast drop. I think there are going to be many more of these deals where investors caught in this shift are going to be the first ones to turn into motivated sellers in this market. I am simply amazed at how the demand has fallen off this hard in such a short amount of time. It seems like sellers prices are still in the clouds but buyers are at the ground... if a deal wants to happen it sure seems like the clouds will have to now come down to the ground unlike the past couple of years. Anyone else seeing similar things in the Phoenix market now?

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Bob Okenwa
Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
4y

@Joey Chrisman

We definitely have people who are getting caught with their pants down that cannot sell flips at their project ARV. Their projections were way off and they are no left holding the bag. Many investors don't want to catch falling knives and won't take on such projects unless they get it at that very low prices.

Sellers are still using comps within the last 6 months that are no longer relevant to the current market. Hell, closed comps from 3 months ago don't really apply to the current market here as the market dynamic has shifted greatly and buyers are being forced to the sidelines.

I can't wait to see OpenDoor's ad Offerpad's earnings next month as they own a lot of property out here that has been sitting forever, even with them finally doing price reductions. I know they make a decent amount upfront on fees, but they can't sell every home for 70k less than what they paid for it and expect to last. Ask Zillow how that went...

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    Seeing a similar trend in our neck of the woods. Gut rehabs are on hold. Flippers are waiting to see what the market does. Cosmetic rehabs are a bit less affected. Market ready and “priced right” are also taking longer to find a buyer and the bidding wars are almost done with. Let’s see what happens after the next interest hike coming up shortly here…

    1Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Joey Chrisman

    We have 3 houses next to us on market. One at $900k that was a fix and flip that has not moved on price

    One at $800k now down to $700k in a month and another at $850k down to $800k

    We had a house sell earlier for $450k last November (which I thought was high) they turned around and sold it for $600k to a flipper.

    Whoever bought it is going to get crushed. I am going to continue to monitor it as I think it will make a great case study of how greedy people were getting

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Chris Seveney:

    @Joey Chrisman

    We have 3 houses next to us on market. One at $900k that was a fix and flip that has not moved on price

    One at $800k now down to $700k in a month and another at $850k down to $800k

    We had a house sell earlier for $450k last November (which I thought was high) they turned around and sold it for $600k to a flipper.

    Whoever bought it is going to get crushed. I am going to continue to monitor it as I think it will make a great case study of how greedy people were getting


     what happens in California shall not happen outside California lol
    So it seems all new houses in the markets are flipper houses apparently.

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    4y

    We just had a few cold feet projects emailed to us in our market. Exterior was completed but the interior was down to the studs with plumbing and electrical torn out. Both properties over priced in a so so C neighborhoods. People who were looking to buy in the area at those prices can't qualify. Flipper has no buyer. 

    They won't sell until the price drops hard. 

    3Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    This is also happening in 2019 when the Fed did QT, as home prices slowly declined in CA, most flippers lost money or took the project on hold. 

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    Will these flippers take a bath or will they convert to STR rentals to try and recoup their investment?

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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Joey Chrisman

    We definitely have people who are getting caught with their pants down that cannot sell flips at their project ARV. Their projections were way off and they are no left holding the bag. Many investors don't want to catch falling knives and won't take on such projects unless they get it at that very low prices.

    Sellers are still using comps within the last 6 months that are no longer relevant to the current market. Hell, closed comps from 3 months ago don't really apply to the current market here as the market dynamic has shifted greatly and buyers are being forced to the sidelines.

    I can't wait to see OpenDoor's ad Offerpad's earnings next month as they own a lot of property out here that has been sitting forever, even with them finally doing price reductions. I know they make a decent amount upfront on fees, but they can't sell every home for 70k less than what they paid for it and expect to last. Ask Zillow how that went...

    12Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

     I found out the RE activity in Q3 2021 is primarily driven by investors/flippers, it was like 30-40% in some high-growing metros. No wonder they're selling aggresively now. This is primarily the reason I think why suddenly there's a huge jump of new listing in the investor market. An owner-occupant's house shall not just sell when the mortgage rate changes.

    0Reply
  • Eric PuffenbergerBusiness Member
    Toledo, OH · Member since 2022 · 46 posts · 26 votes
    4y

    We have not seen that type of downturn in the NW Ohio markets. Homes in the lower price bracket that are fully renovated are still in very high demand.  Investment properties that need substantial work are staying on the market for a longer period of time..most likely because most investors are not willing to spend top dollar for a place that needs work. 

    5Reply
  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    4y
    Quote from @Bob Okenwa:

    @Joey Chrisman

    We definitely have people who are getting caught with their pants down that cannot sell flips at their project ARV. Their projections were way off and they are no left holding the bag. Many investors don't want to catch falling knives and won't take on such projects unless they get it at that very low prices.

    Sellers are still using comps within the last 6 months that are no longer relevant to the current market. Hell, closed comps from 3 months ago don't really apply to the current market here as the market dynamic has shifted greatly and buyers are being forced to the sidelines.

    I can't wait to see OpenDoor's ad Offerpad's earnings next month as they own a lot of property out here that has been sitting forever, even with them finally doing price reductions. I know they make a decent amount upfront on fees, but they can't sell every home for 70k less than what they paid for it and expect to last. Ask Zillow how that went...

    Yeah it seems like there is a big disconnect from what sellers of properties want and what buyers are willing to pay now   I'm thinking the sellers will step down their offer prices in order to move these properties  

    1Reply
  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    4y
    Quote from @Drew Sygit:

    Will these flippers take a bath or will they convert to STR rentals to try and recoup their investment?

     800k with a 25% down payment is still like $3500 a month payment.  I think the STR market in Scottsdale is very crowded if demand wanes from what it has been last couple of years occupancy and rates could easily drop and the cash flows that support the prices for air bnb may not be there. 
    1Reply
  • Leland French
    Member since 2020 · 23 posts · 13 votes
    4y

    Well, I see my predictions in my post a few days ago are playing out around the country. Just takes a little time for the CA trends to catch up else where. Soft market forcing prices down spells good deals for investors in the future, especially if you hesitate a bit to let it develop. Wondering if there are any others out there seeing the turn. Would love to hear from the traditionally inflated markets like Florida and the Northeast.

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Leland French:

    Well, I see my predictions in my post a few days ago are playing out around the country. Just takes a little time for the CA trends to catch up else where. Soft market forcing prices down spells good deals for investors in the future, especially if you hesitate a bit to let it develop. Wondering if there are any others out there seeing the turn. Would love to hear from the traditionally inflated markets like Florida and the Northeast.


     These are the are that have triple digit YoY inventory increases:
    Austin,Vegas,Phoenix, Sacramento,Northwest

    What makes this interesting is these are all the places that Californians moving into .....
    For sure Ohio is not on the list lol

    1Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    4y

    We started investing around 2016-2017 when there were still a lot of foreclosures and bank owned properties on the market. The current state of play is reminding me of that in one way in that we're seeing distressed properties come on the market and spend longer days on market. We're also seeing price reductions, which is something we haven't seen for the last 2 years. However, we're not seeing the super low prices of 2016-17. For example, there were plenty sub-$100k houses you could pick up in our market (we bought a few at the time) back then. They needed a lot of rehab, but the entry point was still much lower. Essentially the same house today in the same condition is still pushing $200k. It's rare to see even a really thrashed property for less than about $175k in our market. Personally, I'm hoping to see those prices come back down, but when they do the ARV will as well.

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  • Leland French
    Member since 2020 · 23 posts · 13 votes
    4y

    I have made money both ways, fix and flip, or fix and hold. I just liquidated CA in the last year expecting the market turn and also not liking how our out of touch governor was making it almost impossible to get bad tenants out. So looking at other states to invest in while CA recovers from bad government. CA RE will always be a good bet as long as you are patient and stay on the opposite side of what everyone else is doing. But to hold here is a bit scary right now with an economy ready to tank and landlords are not supported by fair laws. Some states will be propped up by the exodus of people from CA and other blue states to the states that are more friendly. But I think the effect will be nationwide eventually.

    1Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    471000 people laid off in mortgage and vendors in past three months. Fire sales in NC, FL, TX, OR, UT, ID

    Real estate with a view and tech jobs holding fine.

    Coastal properties holding.

    We are in recession and STR is the next hit.

    Opportunities popping up, watch for the freight train it comes in fast.

    Keep your credit good, cash in checking and stay on the w-2 job.

    If you had a forbearance and owe -sell the property or bring the lump sum current to be ready to buy with a loan.

    6Reply
  • Leland French
    Member since 2020 · 23 posts · 13 votes
    4y

    Great info Caroline! Beautiful state we live in but really have to be on your toes to invest here!

    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Joey Chrisman I don’t know the Phoenix market, though history shows a classic boom and bust and boom cycle.

    Tough to generalize from one example but I can think of a couple of reasons why that niche of not completed flips would be pricing down:

    1) recession and housing market talk has housing construction folks pessimistic.

    2) delays from supply chain and materials cost created delays and margin shaving and will affect the new buyer as well…so why would they take on that problem right now?

    0Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    4y

    I'd be interested to see the address of that property in Scottsdale from the original post. The market around here is absolutely shifting. Inventory is up. Prices are softening. But your story represents a nearly 50% hit in price. This story is an anomaly, not the norm around here. Prices in Scottsdale weren't even hit 50% at the bottom of the 2008 crash.

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    It's very notable that Austin, Phoenix and Vegas inventory is leading to price reduction. It seems the houses being sold are rehabbed beautiful houses that perhaps the flipper has to sell quickly due to the rehab loan. There's a jump in investor activity in that market in Q3 2021. Meanwhile, the most expensive metro like the bay area is exactly like what's predicted. almost nobody wants to sell (new listing down) and almost nobody is willing to buy. 

    So it's natural that very few are willing to buy a broken house either (for a flip).

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Jonathan R McLaughlin:

    @Joey Chrisman I don’t know the Phoenix market, though history shows a classic boom and bust and boom cycle.

    Tough to generalize from one example but I can think of a couple of reasons why that niche of not completed flips would be pricing down:

    1) recession and housing market talk has housing construction folks pessimistic.

    2) delays from supply chain and materials cost created delays and margin shaving and will affect the new buyer as well…so why would they take on that problem right now?


     I think it's simply because too many flippers are buying that market last year. This is not nationwide phenomenon. Cash flow market is generally still okay in today's so-called recession.

    2Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    4y
    Quote from @Eric Puffenberger:

    We have not seen that type of downturn in the NW Ohio markets. Homes in the lower price bracket that are fully renovated are still in very high demand.  Investment properties that need substantial work are staying on the market for a longer period of time..most likely because most investors are not willing to spend top dollar for a place that needs work. 


    Agree with this. Investors are also understandably cautious to take on projects that require substantial work because building material costs have skyrocketed and have actually bounced around quite a bit in the last 2 years, making it very hard to predict your expenses. And supply chain issues are still ongoing which drives up your holding costs. For us, we're completing the construction projects we have underway but we're returning to the days of very conservative underwriting and not being afraid to make lowball offers.
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    1Reply
  • Chris John
    Member since 2020 · 671 posts · 937 votes
    4y

    It seems like over the past year or so, I started reading more and more posts about making money in appreciation, not cashflow, and making every house under the sun a STR.

    I was almost tempted to participate, but in the end, I need enough cashflow to pay for the mortgage and potential BS (although I've definitely made more on appreciation and CF over the years) and I just wasn't seeing it anymore. 

    I just can't shake the feeling that we're at an inflection point and I am seriously confused where we're headed.  Will high interest rates and a potential recession beat out intense demand or vice versa?  Other factors at play that I'm not seeing or haven't fully shown themselves yet?

    People seem to be moving states like I've never seen in my life.  Is this true or am I just noticing it as an adult now?  I have no idea what's going on or where we're headed...  haha.

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    I agree. It does seem like a lot of the inventory price drops in vegas are flippers who tried to make $200k in 30 days dropping to $150k. But assuming most flippers are in and out in 60 - 90 days. Does all the inventory dry up again once they’re gone? Prices are still going up at insane rates but eventually we’ll run back out of inventory unless homeowners are willing to give up their fixed rate low interest loans. If inventory triples we’ll be up to a balanced market. 

    Last numbers I heard was inventory was up 30% over last year, to 25% less than 2020, when everyone said we had record low inventory. So if there were 100 homes for sale in 2020 we had 60 for sale in 2021 and now we have 75 and we need to get to around 225. But builders are building about 80% less than they used to. Assuming 90% of the sales ar owner occupants I don’t see how we get any inventory unless people start leaving the valley. 

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Chris John:

    It seems like over the past year or so, I started reading more and more posts about making money in appreciation, not cashflow, and making every house under the sun a STR.

    I was almost tempted to participate, but in the end, I need enough cashflow to pay for the mortgage and potential BS (although I've definitely made more on appreciation and CF over the years) and I just wasn't seeing it anymore. 

    I just can't shake the feeling that we're at an inflection point and I am seriously confused where we're headed.  Will high interest rates and a potential recession beat out intense demand or vice versa?  Other factors at play that I'm not seeing or haven't fully shown themselves yet?

    People seem to be moving states like I've never seen in my life.  Is this true or am I just noticing it as an adult now?  I have no idea what's going on or where we're headed...  haha.


     we're headed to Asia where houses are sub-zero cap rate and inflation of 5-6% is the new normal. I've seen this music before.

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