safe to buy fix & flips, or safer to BBBR right now?

[Stephanie S.]

Hi! I live in Tampa FL and I'm relatively new in the world of RE. My husband and I have completed 2 fix/flips over the last 2 years, and were considering purchasing our next flip. However a realtor friend of ours said it was a really bad idea right now because property values may start dropping soon. I am now considering buying BBBR properties instead, but my husband still wants to flip. On average it takes us 9 months to finish our flips because we do 95% of the work on our own. However if we did pick up another flip property we would hire out a lot of the work and would aim to complete it within 5 months.

I am hesitant to decide because I really don't know what the experts think about what's going to happen with the housing market, or how fast it will happen.

How do you guys feel about whether to fix/flip or buy/hold this year? Thanks for any advice!

[Dan Maciejewski]

My prediction for our market is that appreciation is going to slow down soon.  We (Tampa / St Petersburg / Clearwater / Pinellas) will remain a net population growth market for the foreseeable future so without a glut of inventory, there's nothing that could really cause prices to drop.  So while appreciation slows to a normal number (4-ish%), prices wouldn't drop.

As we get rid of buyer's agents (there are a lot of big players trying to force that), the prices will correct for the cost savings for sellers but that's only really a few percent.

The glut of inventory that people think is coming isn't really supported by the numbers.  A lot of people think that as forbearance ends, there will be a ton of foreclosures.  Those people can never quote the numbers for me.  The questions are: 

How many houses have loans? (63%)

How many loans are in forbearance?  (5.2%) (This report says 5.54%)

How many of those will NOT be able to catch up or start paying their mortgage?  (Lets pretend all of them, but we know that many of them WILL because there are still people buying.  Some Americans still have jobs, in fact many do, especially in our market)

How many of THOSE are actually underwater (have no equity)?  With the recent historic appreciation, almost none.  That article says 7% and it's from before the pandemic price increase.

So, going off those numbers:

139 million houses in America - * 63% = 87 million * 6% in forbearance = 5.25 million * 7% underwater = 368,000 houses foreclosed or short-saled.  Or to put in another way, .26% of houses (1/4 of a percent).  That's not a glut of houses in our market.  Definitely not enough to even change it into a buyer's market.  We currently have 1.5 months of inventory.

Even if every loan in forbearance gets foreclosed / short-saled, that's 2% of all houses, so that's not even enough to change prices.  Even if mortgage rates go up and half the people buying can't afford to buy, that's enough to shift us into a balanced market, which would stop appreciation but not cause a dramatic drop in prices.

That's just my two cents and it only applies to my / our market.  I know nothing about what, say Youngstown Ohio looks like as far as jobs, sales, ownership trends, etc. .  .

And if the worst happens, and houses are selling cheap and the market crashes and you have a flip that you can't sell at a profit, there will be a whole new glut of renters (that sold their houses) which will drive rents up.  So you should be able to rent it out