How many flippers are now becoming landlords?!?

Question

Being a hard money lender and owning a real estate company, I've been tapped into a general overview of what my clients are going through nationwide. What I'm seeing is a lot of newer investors and realtors miss pricing and not capturing the adjustment of the market. Many of my clients I've funded 6,8,10 months ago are now refinancing their properties with us to hold as rentals. Having 7 projects going on myself in the Pinellas county market, I'm beginning to see a slight drop-off in home values but the demand remains. We get deeeeep discount properties thanks for our direct to seller method which is allowing us to have a great producing portfolio of rentals if need be. So my question to you is, are you pivoting from flipping to holding during these crazy rate hikes?

Are you seeing a decline in your real estate market as well ? Comment where you're investing and what your opinion on the matter is ?

Jay Hinrichs · Answer

I fund flippers and buy and holders in 7 markets.. those that primarily flip are still doing so. those that primarily buy and hold are continuing to do so and rents have risen such that their net effect on raising rates is neutral or better.

important to stay up on current rental rates.

sales to home owners has slowed in all markets time on market has increased to a more normal market down from selling within the first 5 days on market to 30 to 90 days on market before pending.. have not seen a bunch of price drops at least yet.

As time goes on consumer sentiment will come back around when folks realize there are not going to be any sub 3% owner occ rates and sub 4.5% investor rates ..

thats my take on it.

Doug Pretorius · Answer

@Anthony Michael The market all across Canada is collapsing. My local market peaked in February at an average house price just above $1 million, as of August it's down to $750k. All of the big banks are predicting a 40% decline by early 2023. I think that might actually be conservative.

That's probably not going to happen in the US though. Our prices were already wildly unaffordable before the pandemic and they rose another 60% during. Our banking regulators made a huge mistake by allowing amortizations to become fluid. While technically the longest amortization period you can get is 25 years, they've been allowing people to take out larger and larger loans with the same payment, effectively increasing amortization to 60+ years. That along with interest rates that fell to 1.68% (the lowest I saw) caused this this insane appreciation which is now in the process of disappearing.

Anthony Michael · Answer

Personally a lot of my clients are heading for the hills thinking it's another 08 crisis. I keep telling them you make your money when you buy. Make sure you're not overleveraged, make sure you have multiple exits and most importantly make sure you're buying something the general masses can afford.

Jay Hinrichs · Answer

It's kind of ironic for us.. in that are build project in Oregon ( 90 ) homes the ones that our selling are the most expensive fully loaded homes. our lower end starters are lagging behind. We are still making sales without lower prices or concessions and the majority of my buyers are empty nesters paying all cash or very large down payments so interest rates are not really affecting them our price points that are selling are 730k to 900k for 2k to 2600 sq ft.  But we are semi custom they need to be real nice the finish's need to be top notch your not going to get away with LUx Vinyl and builder grade drop in appliance packages etc.  Fully landscaped fenced etc etc.

Andrew Syrios · Answer

Any real estate correction will feel that way and the forums are going to be full of that stuff. The big difference is that while the market almost certainly will go down, there's unlikely to be a financial crisis/spiral of foreclosures because of better lending standards, more fixed-rate loans, more equity in the homes and the like. The stock market's down 15% this year but no one is calling it a stock market collapse. People's psychologies are weird. But you're advise is sounds and in line with what I'm thinking.

Ian Walsh · Answer

I remember watching this shift in 2008.  The next phase is people who tried to make it with rentals and leave their job realizing they are overleveraged and go back to work. When they do this, property management companies thrive because of this particular type of client.

Robin Simon · Answer

Seeing the same thing here as a lender, the best investors are agnostic on whether they flip or rent/refi on their rehab projects, go with the numbers over emotions

Ezra Henderson · Answer

I have not had any flips so far this year that went bad and I had to turn into rentals, but I know a bunch of people in my area who have. Primarily investors who were way to tight on their numbers, and did a terribly sloppy job on the rehab, and are now stuck with their properties that won’t sell.

Jay Hinrichs · Answer

just my little 90 home development in Canby ..  cant say thats the situation in many or all or anywhere else.. I do find it interesting though. the last two sales we did in august were the 900k one and another for 800k and our starters right now are 675k. sold one of those but 7 over 725k have sold in the last 4 months.   again just one guy experince.

Andrew Syrios · Answer

There's still a massive housing shortage so there's no reason to think properties won't continue to sell, price probably just need to come down a bit given we've hit the peak of affordability in many places with rates going up and inflation. That's interesting that starter homes are the ones that are lagging. Not what I would have expected.

How many flippers are now becoming landlords?!?

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