Is the Market going to crash

[Jose Arreola]

Good morning BP fam!

What with all this talk about the bubble going to pop? I am about to get into a flip project. Should i be nervous? What do you guys think?

[Patrick Kaiser]

My advice to the flippers I have been working with:

Interest rates drove everyone's pre-quals down. Out of state buyers (here in Phoenix) we are repeatedly seeing them making offers hoping their houses in XYZ state would sell for XYZ price, then their offers are coming in lower than they hoped, also driving their purchasing power down. Right now the only thing I am seeing selling well are houses that are PRICED WELL compared to the competition. This sounds obvious, but a few months ago, even at astronomically high prices, what was selling well was NICE FINISHES. So there was a market for nicely done houses even in lousy neighborhoods. We struggled with appraisals but not contracts. 

So, the advice at least here in Phoenix is: lower price points, smaller flips, just clean it up, clean it up, clean it up, do bare minimum finishes, and price on the lower side of active listings and we are still doing well. My most recent flip (not mine but represented owner) was actually a $220,000 manufactured home on owned land (not a park) seller put $20k into it, and sold for a $65,000 profit. One of their most profitable flips ever and it was at the absolute bottom of the market. The reason is, everyone's pre-quals went down and there's hardly any inventory left in the under $400,000 price point. 6 months ago it was hard to flip these kinds of houses and make money, now it's the frickin rage. 

I don't know if its like here but my primary advice is do not aim for the top of the market in whatever price point you are in. All buyers are very price sensitive right now.