House Flipping Tips for Fall 2014

As Bank of America opens its wallet to shell out the $16.65 billion it owes the US government for all those terrible mortgages, many economists are examining the current housing market to determine whether we’re headed down the same path a second time.

Late last year, fears of another bubble were at a fever pitch, but as 2014 rolls along, the evidence continues to show that there’s nothing alarming going on in the current housing market:

• -Prices have steadied, but are still on the rise. The Zillow Home Value Index for June 2014 showed a 6.3% year-over-year increase in home prices across the nation. Month over month, home prices are going up at small increments, but they are going up. This is a sign of stability and reflects the continued lack of inventory combined with a low affordability index around the nation.
• -Despite fewer people buying, home builder confidence is at a seven month high. The National Association of Homebuilders reports that builders are generally optimistic about the state of their developments and about current sales trends.
• -Loans have gone legit. Apparently banks learned their lesson well in advance of Bank of America’s settlement. As a result, they’ve become much stingier about who they give loans to, improving the terms and credibility of the loans that they do give to buyers.
• -The economy is doing better all the time. 2014s first quarter numbers had economists worried, but the fiscal report for the second quarter showed that the economy is actually doing pretty darn well. Unemployment is at its lowest level since 2008, layoffs are slowing down, and the public is feeling more confident about their job security.

All of this is great news for the stability of the housing market. Unfortunately, “stability” isn’t most house flipping pros’ favorite word.

It’s true, the hay day of 2013 is disappearing into the night. Foreclosures have reached a standstill, and bidding wars are becoming a thing of the past. So what is a house flipper to do? We’ve got one piece of advice:

Go Big or Go Home

While opportunities for rehab real estate investing are dwindling in most markets, high-end neighborhoods still offer great opportunities for house flippers. Sales of homes priced over one million dollars in California have reached a seven year high. While statewide home sales fell 7.4% compared to last year in the second quarter, million-dollar home sales went up by 9.1%.

According to data out of Redfin, the areas where house flippers made the biggest gross profits in 2013 were high-end neighborhoods in cities like San Francisco, San Jose, Oakland, and Los Angeles. Sales of such homes aren’t slowing down this year, showing that the high-end market is the place to be for house flippers.

Flippers with access to strong financing and solid market research will do best this fall. While you may have had great success flipping three or four distressed properties at a time last fall, this season you’ll likely have much better success focusing on one or two high-end properties in up and coming neighborhoods like Mid City Los Angeles or Petworth, Washington D.C.