Flipping in unsettled markets

[Bryce Henson]

Hey all, I'm curious how successful folks have been with flipping homes in this crazy market. In the Seattle area, prices have been adjusting to the higher interest rates, but I'm wondering if folks are still having success in flipping homes overall? Thank you all in advance! 

[Andy Sabisch]

There is no formula that fits all markets and price points . . . I hate when people look for that magic formula (not what you were asking but bear with me).

You make your money when you buy not when you sell holds true in any market.  If you buy at the right price and gauge the direction of the market (how much of a swing do you anticipate) and what will the material cost / holding cost be worst case you can make money in today's market.  Expect another rate hike and see interest rates near 9% or better in 6 months.  See how many buyers the hikes have taken out of the market already and see if your project will still sell in 6 months at higher rates.  Be careful about over zealous agents that give you a pie in the sky number and then say you have it priced too high and need to drop the price.  Find an agent that knows the market, has dealt with investors and can help you forecast market directions - we have one that is worth her weight in gold with the intel she can provide.

We are very selective on projects we consider with where the market is and where it is heading . . . hopefully post-November we will have a better idea where things are heading . .. for now, we have picked up rentals as sellers are panicking and the numbers still work with the 6.5% - 7.5% interest rates we are getting on oans

[Bryce Henson]

@Andy Sabisch Thanks so much for your feedback! It's sage advice. I am new to investing in general, but there's a property I've been looking at that I really think would be a great rehab/flip, but I would be nervous to get it all ready to go, only to put it on the market and have it sit. I like your approach, where you're buying rentals right now. I really appreciate your input! 

[Will Barnard]

As stated above, your acquisition price and knowledge of your local market conditions is imperative to success of flipping, especially in a flat or downward market trend. With rates continuing to climb and recession deepening, values will get pressure as affordability levels are reduced. A lot of buyers are priced out due to the higher rates which will continue to climb until the fed has killed the economy. Run your numbers to see how it pencils out as a buy and hold as a backup to the flip if the flip cant be sold profitably.

[Bryce Henson]

Great advice, @Will Barnard! I have considered the potential of renting it as a duplex as a backup plan. I think worst case scenario I could get just enough in rent to break even until things clear up. But like @Andy Sabisch said, "you make your money when you buy not when you sell". I've heard that mantra before, and I need to remember that!  

[Will Barnard]

@Bryce Henson Well, if you like mantras, here is another: “Real Estate Education is not a cost, it is an investment”. - Will Barnard

Paying for education, be it a book, course, live event, college, whatever, that money going out should result in saving you costs from mistakes that otherwise could have been avoided with proper education. An educated investor will make better buying decisions, better operating decisions, and better management decisions allowing for less costly mistakes and better profitable investments.

[Bryce Henson]

@Will Barnard Great advice! I'm actually doing the BP rookie bootcamp, but gosh there's so much to learn! I love getting feedback and advice from those who are doing it which is why the BP forum is so great. With both of your advice I'm really making some educated moves towards purchasing this property. I'll let you know if it ends up moving forward. 

[William Harvey]

Quote from @Andy Sabisch:

There is no formula that fits all markets and price points . . . I hate when people look for that magic formula (not what you were asking but bear with me).

You make your money when you buy not when you sell holds true in any market.  If you buy at the right price and gauge the direction of the market (how much of a swing do you anticipate) and what will the material cost / holding cost be worst case you can make money in today's market.  Expect another rate hike and see interest rates near 9% or better in 6 months.  See how many buyers the hikes have taken out of the market already and see if your project will still sell in 6 months at higher rates.  Be careful about over zealous agents that give you a pie in the sky number and then say you have it priced too high and need to drop the price.  Find an agent that knows the market, has dealt with investors and can help you forecast market directions - we have one that is worth her weight in gold with the intel she can provide.

We are very selective on projects we consider with where the market is and where it is heading . . . hopefully post-November we will have a better idea where things are heading . .. for now, we have picked up rentals as sellers are panicking and the numbers still work with the 6.5% - 7.5% interest rates we are getting on oans

 I agree with @Andy Sabisch about making money when you buy. That holds true in literally any market, good or bad. When we are running our numbers and analyzing deals, we are being ultra-conservative on the ARV. Since there is uncertainty with the Fed raising rates, elections coming up, inflation, etc. we are baking in a big buffer on the ARV. If recent comps support a property selling for $400,000 we would likely knock that down to $350,000 and work backwards from there.

Obviously this market sucks and is changing, but honestly, this is the first time in years where we've felt we have the upper hand as buyers. We buy everything off market directly from sellers and we've always felt fomo and were nervous about our offers. Today, we have zero fomo whatsoever. We are fine buying deals at our number, and if that doesn't work then best of luck. Seems like a lotttttt of buyers have dropped off so the ones remaining can truly get good deals.

Tl;dr - focus on NAILING your ARV and being on the conservative side, and you should be good no matter what kind of market you are in.
 
 

[Michael Haas]

I second @William Harvey - flipping in particular, and investing in general, right now is about being very conservative with your numbers and sticking to them. The fact that there are few buyers means that you can just say "next!" when the deal isn't a home run for you, and another deal will come up shortly. Happy Hunting :). 

[Bob Stevens]

Quote from @Bryce Henson:

Hey all, I'm curious how successful folks have been with flipping homes in this crazy market. In the Seattle area, prices have been adjusting to the higher interest rates, but I'm wondering if folks are still having success in flipping homes overall? Thank you all in advance! 

 You can flip in ANY market, its all about the PP,. You make your money when you buy,

good luck 

[Eliott Elias]

Flipping has been a nightmare in Austin these past few months. Offering seller finance is a great way to get things to sell 

[Bryce Henson]

@Eliott Elias Thank you for the insight! I've been thinking about the concept of seller financing when acquiring a home that I would like to flip. I just learned yesterday that when a seller does financing, they don't have to pay as much in capital gains over the course of the sale, which can be a huge advantage in certain circumstances. 

[James Dainard]

Hey Bryce,

We're still flipping but we're making sure to pad our proformas to account for longer hold times and new market values.

Success is built in on the buy when you have multiple exit strategies and a good estimation on your renovation costs.

[Bryce Henson]

@James Dainard Thanks for your input. I was listening in on your webinar the other day, and I know if anyone knows the market, it's you! 

I'm new to real estate investing (currently enrolled in the BP rookie bootcamp) and I've got my eye on a property. I've run the numbers to flip it and also to buy and hold and I'm *pretty sure* the numbers work out either way. But I'm having a hard time trusting myself... and an even harder time coming up with the initial deposit! I know I'll eventually make a move, but I'm wanting to gain more knowledge before I really dive into something. That said, I'm looking forward to your next webinar!

[Dave Skow]

@Bryce Henson- Seattle  was more  difficult  city to  buy/ flip in a year ago ...much more  difficult  right now in the  fast  changing  landscape  ( prices / rates / buyer appetites .....eg.  spoke with a  small builder that has a project  earmarked  to make close to  170K   ...but due to delays  for multiple  diff reasons  - he  recently sold the  property and made less than  20K  ( he  worked on this for  over a year )!

[Bryce Henson]

@Dave Skow thank you for the honest feedback. I'm sorry to hear about the issues your builder acquaintance has been having! That must've been stressful, but at least he came out in the black. The overall vibe I'm getting right now is that if you're buying and holding, this could be a great time to invest, but if you're looking to flip and and you're a noobie, that it may not be the best thing to do right now- which does make sense. There's a lot to think about when considering a flip, least of which is "how am I gonna sell this when I'm done?". I think if the numbers work either way (you can sell or flip the property) it could make sense... but then, as I had mentioned before, there's the whole issue with coming up with the down payment! Stuff is still really expensive!

Again, I appreciate everyone's feedback. Y'all are pros, and I appreciate the opportunity to learn from you all. 

[Cameron Ealy]

Quote from @Eliott Elias:

Flipping has been a nightmare in Austin these past few months. Offering seller finance is a great way to get things to sell 

 Hey Elliot,

kind of new to investing could you explain to me in short the process of getting a seller finance property to sell. Specifically the paperwork side of things is there any deviation from a property that's in you/your company's name. 

[Wale Lawal]

@Bryce Henson

Flipping is most strongly associated with real estate, where it refers to a strategy of purchasing properties and selling them on a short time frame (generally less than a year) for a profit. In real estate, flipping usually falls into one of two types.

The first type is where real estate investors target properties that are in a rapidly appreciating market and resell with little or no additional investment in the physical property. This is a play on the market conditions rather than the property itself.

The second type is a quick fix flip where a real estate investor uses his knowledge of what buyers want to improve undervalued properties with renovations and/or cosmetic changes, known as a reno flip.

So have target the properties that meets you investment goals.

Good luck!

[Eliott Elias]

Quote from @Cameron Ealy:

Quote from @Eliott Elias:

Flipping has been a nightmare in Austin these past few months. Offering seller finance is a great way to get things to sell 

 Hey Elliot,

kind of new to investing could you explain to me in short the process of getting a seller finance property to sell. Specifically the paperwork side of things is there any deviation from a property that's in you/your company's name. 

 You will use a seller finance amendment 

[Kerry Noble Jr]

Just managed a flip that just got an offer of full asking price......1 day on market......

[Ryan Kelly]

@Bryce Henson in my opinion, flipping is not investing but simply a construction job that CAN make good money if you are good at getting the numbers right. I always believe flippers should go into every deal with a Plan B investment strategy if you can't get it sold for the right price. Can you keep it as a long-term rental? Short-term rental? Sell with seller financing? Bring on an investment partner? Especially with large markets like Seattle and Austin seeing lower market values, it's important not to get upside-down with your flipping business. Run your numbers very conservatively and have a Plan B. Then take action!

[Bryce Henson]

@Ryan Kelly That's great advice! I am actually a journeyman electrician by trade, so I do have somewhat of an advantageous perspective from the construction side of things. My biggest hurdles are 1) Coming up with the money for a down payment 2) Market uncertainty 3) Trusting myself and my numbers! Being new to this and being on my own in the process makes things a little extra daunting. 

Again, I appreciate yours and everyone's feedback. This post has generated a ton of discussion which is invaluable!

[Sherief Elbassuoni]

@Bryce Henson, I still get goog flips for my clients, but we add more holding time, and we are very conservative with our numbers.

On top of that, we check Plan B (can we keep it as a rental if it did not get sold)

[Bryce Henson]

@Sherief Elbassuoni I attended a get together last night hosted by Leka Devatha, and her guest speakers were saying the same thing. It seems the name of the game right now is being conservative with your numbers while having a solid exit or pivot strategy. I appreciate your input!