Is there still place for flippers in todays economy?

Question

I got started in the Real Estate world about 5 months ago when i realized that i needed to produce additional income. I heard about buying properties online (Auctions) and reselling them. I googled a couple of online places and end up choosing an Auction site. After a couple of weeks i got really lucky and got a property that i was able to flip after 4 months. I didn't do a lot of money because i ran into a lot of details that i went learning along the way. Never the less i ended up making a good return. I got really excited and decided to move forward and keep doing what i did the first time. Its been 2 months and i haven't been able to find another property to flip. Im currently living in South Florida and i would love to hear the opinion of those of you with a lot more experience than me. Apparently things are changing very fast, banks are getting more money through these channels than through original avenues, 2.5% in most of the cases. And If you add this to the fact that interests are low, rents are high and there is a lot of money flowing in from South America and Asia where large capitals are not producing more than a 4.5% per year in traditional portfolios of investment.... my question would be; Is there still place for flippers in today's economy?

Thanks!! :)

Bill Gulley · Answer

I like Al's post saying acquire "under valued" properties instead of saying buy "under market" and adding value then setting a price that moves the property in your current market. That is exactly how you do it!

If you're adding value, that makes flipping a solid business in any market in any economic condition.

IMO, no large corporate firm or foreign investor can compete with me. They have money, but money alone doesn't make a deal successful, especially in residential, in commercial aspects they will have more options, but not really in residential.

They have no boots on the ground! They hire the expertise needed. Who do they hire? Usually brokers or agents, in large operations these RE types become employees or, they agree to rock bottom commissions. Are they getting the cream of the crop to work for them? I doubt it, they are usually survivors in real estate, deal to deal, check to check types (which is okay) but they aren't the sharpest tool in the box or the top agents in your area, those agents would be losing money. So, who are you really competing against? The same folks that were there last month, the only difference now is they have a client that has capital.

Did your inventory change? No. Homes are always coming on the market, there is always a turn over of inventory regardless of economic times or who is playing.

If you're trying to live off internet listings, the MLS or auctions, now you're competing head to head with bigger pockets (pun used). Why do that?

Deals are found and then made. My boots are on the ground. Very few people know my area as well as I do (I grew up here) heck, I know where all kinds of things are that folks that have lived here for 20 years have no clue about. Someone very famous told you to grow where you are planted. Know your market, physically and financially.

If I see a for sale sign in a yard and the owner is mowing his yard, with my skills I'll be talking to the guy and most likely I can lead him into talking about the house, usually they show it to me. I agree quickly to work with the agent, he hired him for a reason, could be his brother in law, so there is no need trying to cut them out.

I'm not a licensee any more, if he has a pending contract, that's not my matter, he can still think on it and accept my offer.

Oh, some investing corporation wants the place! Do you like your neighbors, this area and neighborhood? Have you ever seen what happens when a corporate leasing outfit gets a foothold in a nice neighborhood? Your neighbors may not be real happy. When neighbors aren't happy they may not welcome that tenant, the tenant realizes the social aspect and they become unhappy. Vacancies increase, properties are repaired for the corporate bottom line without regard for the social aspects. Others move out and pride of ownership falls.

When I buy, or the better investors I deal with buys locally, we have a different approach. If there is an issue I'm on it, my interest is in protecting the property as well as the neighborhood because that means better appreciation for me. Keeping my neighbors happy protects my investment.

Flexibility that corporates don't have: I see they offered you $5,000 less than your asking price. That really is too much to pay and operate in keeping the property in good repair like I would have to. I can offer you $8,000 less initially, but I can set this up with a deed restriction on my part that requires me to sell the property in 5 years and from that, I will agree to give you $5,000 over your asking price today when the property sells in 5 years. You'd have to triple your money on that $5,000 you're losing on their offer to match mine in five years! I'll keep the income on the property over a 5 year period and split those profits with you and we can save the property from possible disrepair as well as values in the neighborhood.  And the owner says "can you really do that?" and then I'd say "absolutely, I've partnered many times before with owners!" Shake hand and fill out your contract and have him reject the corporate deal, then call the listing agent and hand him the contract. (doesn't always happen that way when dealing direct, you may have the listing agent meet at the kitchen table. The agent will get 3% on the corporate deal most likely, they get 6% of the new deal, but nothing on the back end.......ways to make them happy in the future too.)

That is not magic, just a creative use of the fundamentals of real estate. Restrictive deed covenants!

So, should you give up any walk away from deals where the big boys are playing? Not at all, you can beat them, you deal may not be what you might have made without them being in your market, but that doesn't mean you can't pull a good deal competing with them.

Investors can operate like a Special Forces operator in the battle, they can have greater knowledge of the battlefield, be able to move quickly, operate silently, change tactics quickly, adapt to conditions and strike, while the big boys move in mass, like an invading army, bringing nothing to the community but pillage and plunder. LOL  :)

Alvin Neal · Answer

Florida and California are always going to be right markets. They are very desireable fir vacation and retirement. You would just have to find your niche and focus on that.

Jon Klaus · Answer

Sounds like local mom and pop investors may have a permanent advantage over big corporate, despite their capital and technology.

Walt Payne · Answer

@Andres Goldstucker  I worked for a rehabber and kept in contact for quite a while after I left his employment, and I saw that flipping can work in any economy. To succeed you need to know your market, what neighborhoods or even markets will work,  and what price ranges are selling. People still need a place to live. Our society has been very mobile for a lot of years, so they will need new places to move into as they change cities, change jobs, retire, etc. Besides that, you have to know what a real deal is, and buy it at a great price. And yes, that becomes tricky in a sliding or crashing market.

Also, in an unstable market it helps if you can flip in the price range that allows an exit strategy of hold and rent so you don't lose big on a crash.

So yes, flippers can make money in any economy. Is it easy? No. Is it risky? Yes. But flipping involves risk in the best of times. Experience and knowledge will help mitigate those risks, but they always exist.

Alvin Neal · Answer

Hey@ Andres Goldstucker, I am also new to Investing and I believe  there definitely is a place for flipping in today's  economy.  There is a great book out by Gary Keller called "Shift". It basically teaches you to adapt to the current market you are in. The best way to get deals is to get them off market. There are some great deals here in the Metro Detroit Area. With a direct mail campaign you can acquire some undervalued properties do some light rehabbing and put them on the market just below current market prices for a quick sale.

Ron F. · Answer

Getting properties at the right price has always been an issue and will continue to be so. Unfortunately there are more players in the market so the competition is getting fierce. Added to this is the economy - this is getting better by the day and house prices in most areas are rising. South Florida is a typical example. I operate there on the west coast and getting REOs these days is difficult at the right price. However, finding off-market properties is the way to go and to do that you will need a good realtor or you need to have boots on the ground or both. I am struggling with the same problem. You may wish to also diversify and try buying and renting for a couple of years and then selling. But getting the right tenants and deciding the right time to sell, not forgetting the financing of the deal will be the challenges. Good hunting!!

Bill Gulley · Answer

Absolutely, do not fear Goliath, he was taken down by a small stone in the right place, time and circumstance.

Thanks for the fix Jon.

Andres Goldstucker · Answer

Would you currently consider South Florida as one of the "right markets"?

Hattie Dizmond · Answer

There is absolutely a place for flippers.  It's a matter of finding the right deals and being in the right market(s).  For instance, deals are hard to come by in DFW, but the market is great for flips, assuming you bought at the right price.

Is there still place for flippers in todays economy?

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