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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  • Chris John
    Member since 2020 · 671 posts · 937 votes
    4y

    @Carlos Ptriawan

    Uh, I don't like that!  I guess I'll just go ahead and spend my money as I make it and enjoy life for a while then! haha.

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    4y
    Quote from @Caroline Gerardo:

    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.


    When they stop using Debit cards and are paying with antique coins (wheat heads, mercury dimes, etc...) you know the population of an area is (out of money).

    And then it really can be Pick of the Litter--if you have some denaro.

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    4y
    Quote from @Scott Mac:
    Quote from @Caroline Gerardo:

    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.


    When they stop using Debit cards and are paying with antique coins (wheat heads, mercury dimes, etc...) you know the population of an area is (out of money).

    Counting out change for a coffee and a hamburger at McDonalds (and not having enough) kind of stuff.

    And then it really can be Pick of the Litter--if you have some denaro.


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

    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.

    Hey there... yeah it went to auction and I couldn't believe it. The house is completely gutted and nobody wanted to bid on it.  The only reason I can think of is that most buyers assumed the seller would not accept the final price of the auction so they decided not to bid seriously   
    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Chris John:

    @Carlos Ptriawan

    Uh, I don't like that!  I guess I'll just go ahead and spend my money as I make it and enjoy life for a while then! haha.


     hahaha lucky we still have Alabama and Indiana as cash flow markets.
    70k house 4 years ago only rise to 105k ;-) lol

    1Reply
  • Zambricki Li
    Real Estate Agent · Los Angeles CA + Lake Tahoe, NV and CA · Member since 2021 · 180 posts · 158 votes
    4y

    So interesting. These indicators really are the canaries in the coal mines. So many people have gotten into flipping and STR over the pandemic. STR is not always the answer if your flip is no longer penciling out.

    Los Angeles is solid and rents are up. Lake Tahoe is leveling off. STR permits are at risk everywhere. I've been in the county STR meetings in multiple regions many people want to ban it, even in established vacation areas where it used to seem totally safe to operate. It just takes one commissioner who wants to make his mark to come along and whisper "BAN" and it all goes into a frenzy.

    These next couple months of leveling off may be a good time to work on acquiring a next/first primary residence with some floorplan or zoning flexibility so you can househack/add units later/use FHA and refi when rates go down at a later date.

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    By the way, considering those are flippers house that was bought in Q3 2021 with 10-12% interest rate, We shall expect increasing new inventory until Q4 2022 then since they have 12-15 months maturity. 

    I also notice the wholesaler spam is very few these days, usually, they call me every 12 hours.

    1Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    4y
    Quote from @Joey Chrisman:
    Quote from @Scott E.:

    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.

    Hey there... yeah it went to auction and I couldn't believe it. The house is completely gutted and nobody wanted to bid on it.  The only reason I can think of is that most buyers assumed the seller would not accept the final price of the auction so they decided not to bid seriously   

    I know the area well. I did a flip last year on Latham actually. This guy WAY overpaid for the house. It's worth probably around $550k in its current condition. Do you know what his reserve price was?

    0Reply
  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    4y
    Quote from @Scott E.:
    Quote from @Joey Chrisman:
    Quote from @Scott E.:

    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.

    Hey there... yeah it went to auction and I couldn't believe it. The house is completely gutted and nobody wanted to bid on it.  The only reason I can think of is that most buyers assumed the seller would not accept the final price of the auction so they decided not to bid seriously   

    I know the area well. I did a flip last year on Latham actually. This guy WAY overpaid for the house. It's worth probably around $550k in its current condition. Do you know what his reserve price was?

    Well the auction started at $500k. No interest what so ever so they lowered it to 300k starting bid and the highest it was bid up to was $341k plus 5% buyer premium.  There isn't really a reserve since it's a mls auction or something basically the seller has to approve the price but I found it surprising it did not get bid up to even 400k.  I'm sure if this was march it would of.  But I think maybe the fact that it's a non binding auction made it not get bid up since everyone knew the guy paid 643k and would likely not take anything under 500k.  
    1Reply
  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    4y
    Quote from @Scott E.:
    Quote from @Joey Chrisman:
    Quote from @Scott E.:

    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.

    Hey there... yeah it went to auction and I couldn't believe it. The house is completely gutted and nobody wanted to bid on it.  The only reason I can think of is that most buyers assumed the seller would not accept the final price of the auction so they decided not to bid seriously   

    I know the area well. I did a flip last year on Latham actually. This guy WAY overpaid for the house. It's worth probably around $550k in its current condition. Do you know what his reserve price was?

    How do you figure $550k. I think Property probably needs $150k into it that puts you at $700k into it and right now there are finished properties listed for $750k to 800k that are sitting.  $360k to 400k seems reasonable to me given the amount of time and money required to complete the flip. 
    2Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    4y

    Everything in this zip code listed for $750k-$800k that is not under contract is crap. The house flippers who cut corners or who were not thoughtful with their designs are getting burned right now.

    Your deal is a big house and walking distance to one of the biggest mixed use developments that South Scottsdale has ever seen. With a proper remodel and a swimming pool this would make a killer short term rental.

    The only reason it didn't sell is because it was listed on some obscure auction site that nobody has heard of. If this place hit the MLS at $500k it would sell fast. It's got 4 bedrooms, it's 2,600 square feet, and its sitting on a big lot.

    Try to get the place under contract for $400k and then flip it to me for $425k. We'll both be happy :)

    2Reply
  • Paul Smythe
    Investor · Greenville, SC · Member since 2012 · 269 posts · 187 votes
    4y

    @Chris John I remember on the BP podcast they talked about rent appreciation and buying even if it wasn't cashflowing because rent would eventually appreciate to make it cashflow. Sounded silly to me at the time.

    1Reply
  • Laura ShinklePro Member
    Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes
    4y

    What is it that they say? There's money to be made when markets turn. No matter how many times history repeats itself, people forget that markets are cyclical and what goes up must come down. You need multiple exit strategies. 

    From what I'm seeing in Charlotte, NC, sellers are still thinking they can ask whatever they want. Buyers are pushing back. 

    There are lots of price decreases from sellers who still think its 2021, and listing agents who will take the listing and price it wherever the seller wants to. 

    Move in ready, well cared for homes are still selling like hotcakes with multiple offers. Homes that need work, really the ones that have minimal cosmetic work are actually the ones that are sitting the longest. There's not enough meat on the deal to entice investors and regular homebuyers don't want a project after paying 6% interest rates. 

    Just my two cents!

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Caroline Gerardo:

    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.


    we are not seeing fire sales in Most of Oregon.. maybe some really bad areas of PDX were its the homeless campers causing devaluation.  I have personally sold 7 of my first new builds Q 2 this year and not one of them sold for less than asking price and most added 20 to 60k in upgrades.. Now i do believe I have a little honey hole location though.  when things go south in Oregon the coast is first hit and hardest hit.. it took over a decade to bounce back from 08 where the metro markets were back in half that time.  with refis basically dead no question mortgage industry is going to see shrinkage along with title and escrow etc etc. normal cycle in that part of the industry.  We are though for the first time in 5 years getting unsolicited contact from sub contractors wishing to bid our project. So maybe we can get back into some competitive bidding to lower our build cost and give a better price on the home.

    On my JV lending company I am telling all my mid west east coast clients quit letting these wholesalers dictate such large slices out of the deals .. the day of them taking bigger fee than anyone makes has got to be over .. work backwards from rent  figure in the new rates and come up with a new value for rehabber houses and dont over pay.. I am not going to fund anymore deals that have huge wholesaler fee's personally.
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  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Joey Chrisman:

    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?


     I think because of the housing shortage here in Columbus we are still going strong. There has definitely been a slight slow although people are still getting a deal. 

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

    I read the information that the big institutional buyer will restart buying from falls. There will be private equity that will buy houses if the market crash lol

    0Reply
  • Laura ShinklePro Member
    Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes
    4y
    Quote from @Carlos Ptriawan:

    I read the information that the big institutional buyer will restart buying from falls. There will be private equity that will buy houses if the market crash lol


     Depends. Here in Charlotte, a lot of HOAs are putting restrictions on the amount of properties one person/entity can own in the neighborhood. Invitation Homes is unloading quite a few right now in the Charlotte area. Hopefully that gives the little people more of a chance!

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    oh, every HOA already has limitations on how many units are available for rental, in our complex it is a max. of 20-25% only.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Carlos Ptriawan:

    oh, every HOA already has limitations on how many units are available for rental, in our complex it is a max. of 20-25% only.


    I ran into this in Madison county Mississipi  . many of the higher end developments did not ALLOW ANY RENTALS AT ALL.
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  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    4y

    Opendoor currently owns 2039 SFR's in the Phoenix area. Half on the market already. Should be interesting...

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

    do you know some of their mls listings? would be interesting to see...

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    I read about OpenDoor, there's a 15-20% spread for their purchase related to the next 90 days' home price. The company also actively hedges its interest rate risk. A 1% rate increase in LIBOR only adds $4mil in expense. They're much more sophisticated than typical rehabbers. But if home price declines by 20% eventually they're in trouble or have to hold longer. Their listing that took longer than 3 months is only 7% of inventory ; but that's last year.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Tim G.:

    Opendoor currently owns 2039 SFR's in the Phoenix area. Half on the market already. Should be interesting...


     seems like a good strategy buy high and sell into a descending market. 

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Jay Hinrichs:
    Quote from @Tim G.:

    Opendoor currently owns 2039 SFR's in the Phoenix area. Half on the market already. Should be interesting...


     seems like a good strategy buy high and sell into a descending market. 


    They actually started buying in Q3 2021 - Q4 2021 (this matched with the other investors data) ; and start selling in Feb 2022. In Q2 2021 they did more selling than buying. 

    As of today they actually started buying again slowly.

    0Reply
  • Dustin P.
    Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
    4y

    Just grabbed one 250k off the price it was listed for in April. There are definitely some panic sellers out there!

    1Reply
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