All Forum Posts by: Rob Jafek

Mike - you'll appreciate like few others the tax implications!  There's the whole 'capital asset vs inventory' considerations, but under a year its certainly short term, so it really doesn't matter. And we are seeing about the same amount of short-term stuff in our portfolio: people take down a project, and then assess if it's more profitable to flip it right out and have the problem of finding the next one, or go through all the rehab work, it really is all a TVM exercise.  Glad you found (another) one that worked for you.  

A recent article I found interesting was published by Corelogic, and made two points: 1. home flipping has reached a post-crash high:

and second that acquisition costs have marched higher for fix and flippers. 

And while I would suggest that new ‘post-crash high’ is really just a return to historical averages, I would also agree with this article that the ‘flipping’ dynamic has changed quite a bit over the past few years. In the ‘old days’, many flippers could essentially buy a home at a wholesale price, add a bit of paint and repair, and then sell the home nearer to a retail price, and holding periods in our portfolios were just over 90 days. Today, it’s a different borrower, so much so that we hesitate to call them ‘fix and flippers’, finding the term ‘rehabber’ much more accurate. We’ve observed the housing price increase, similar to the one noted here, but also seen a vast difference in what goes into a project. The authors seem to suggest it’s just that there are fewer distressed properties, but we think there’s much more to it. Now, our holding period averages nearly twice that prior average, and we discuss major renovations and the associated permitting and financing with our borrowers to help assess the risks and mutual expectations and necessary performances. 

An article that I found worthwhile which may be of interest to some and I haven't seen picked up broadly yet comes from UCLA Anderson and is entitled "Single-Family Rental Returns: What Drives Investor Return?" The authors find that prior research has only considered either net yield or price appreciation, to the exclusion of the other, so they looked at both. They find a total average return of 9% for the period they looked at (1986 to 2014), and conclude:

"Each component contributes approximately equally to the aggregate U.S. portfolio of housing returns, so excluding one component excludes half of total returns on average," 

There is also a helpful graph comparing the breakdown between the two factors in the 30 largest metro areas. 

Full article can be found here