An alternate title for my post could be 'Flippers and the Law of Diminishing Spreads'! I am in the Las Vegas market and am running up against the same issues I am repeatedly hearing for other markets in that the pricing for trustee sales and REOs are getting bid up to nearly list which wasn't the case a year or even as recent as 6 mos. ago. That being said plus the fact that short sales are also becoming increasingly difficult to buy at enough of discount makes for a non-existent market or at the very least slimmer profit margins for the active flipper. That is, unless your exit strategy is to sell at above market to unsuspecting buyers who don't care (show me where these folks are, please!). Everywhere you look, it has become saturated with cash retail buyers and buy-and-hold investors who don't mind paying 90 cents on the dollar and just look at getting a better return than a lousy 2% CD which makes zero sense to me! Us flippers don't stand a chance competing with this segment. And as Marty Boardman has made it clear in today's blog [ (http://www.biggerpockets.com/renewsblog/2011/03/03/the-incredible-vanishing-bulk-reo-seller), bulk REOs at pricing that makes sense simply don't exist. So what is your search criteria now? 90+ DOM? Pre-list/pocket listings? Major rehabs? What about the public REO auctions like REDC, or are they largely a waste of time? What other choices do we have???

It's all guru fear mongering. They have certain things they're selling so they are going to push this fear of the hedge funds into the heads of those who are willing to open their wallets.

I don't know about in your area, but I can't see how getting govt. grants to re-do commercial projects aren't any less a needle in the haystack than doing bread-and-butter SFR flips. In our market, we've had upwards of approx. 20 units selling daily at the auction to 3rd parties. Out of that, I figure perhaps 4 or 5 are at enough of a spread to flip which comes to 80-100 deals per month at an avg cost of around $90K and an avg net spread of 12% comes to just under $1mm per mo. in profit. And that's only at our local auction. Just my 2 cents.

I agree with all of your advice Marty, after all, everything is a constant evolution. After years in the greater Phoenix area real estate rehab business, (we stopped calling them fix and flips when all the linoleum rollers hit town slapping paint everywhere and leaving plumbing and roof issues untouched!) we revamped with the market crash, learning how to list REOs and short sales, working with asset managers and recreating our business models. Things have changed as quickly as we discovered how to conquer them, keeping us in a constant state of flux, hence, a new mailing address in Seattle Washington!

I agree that the market, whether itâ€™s Phoenix or Vegas or anywhere else, is cyclical. If your business model is to fix and flip then you need to act like a squirrel â€“ gather nuts in the summer so you wonâ€™t go hungry in the winter. In other words, when times are good do as many deals as you can and save some cash for the slow season. Over the holidays things were very slow for our firm but we got through it because of the success we had in the fall. I spent the extra time writing a private placement memorandum with our attorney and preparing our taxes. We hit the ground running in January and 3 of the 4 properties we bought are in escrow. All I can say is that nothing stays the same for long in this business. Keep writing offers and placing bids. Eventually those cash buyers will run out of money and the newbie investors will get creamed. You'll start finding good deals again.

Tim Silvers I hope that doesn't happen. I really doubt it could completely happen. Smaller entities can be more nimble to react to trends and conditions.

It has been two years since I started this thread and a lot has changed since - but the concern remains the same! Since I've been priced out of our local market here in Vegas - from every buy-and-holder from the moms and pops to the big hedge funds paying stupid prices, I have migrated to the Phoenix market and have been been active and going full speed since last year. My take is that although the market is just as saturated and many of the little guys have already been priced out, there is way more volume for the properties that are in need of major rehab that most don't have the wear with all to handle. Quick question: What with the lack of inventory and rising prices, the hard-working flippers are seeing a window of opportunity of which to take advantage while it lasts. The question for the ages is - how long? The rumors I hear (and, of course the one "guru" Preston Ely [ http://www.sfgate.com/business/prweb/article/Real-Estate-Mogul-Preston-Ely-Spreads-The-Word-4083839.php ]has been spewing in his webinar for some time) is that the big hedge funds will wipe all of us smaller investors off the face of the earth by making it impossible for us to compete with them. And here's the latest one from BP's Steve Cook: http://www.biggerpockets.com/renewsblog/2013/04/17/good-bye-glory-years-real-estate-investing/ It will be interesting to see where the Phoenix (and many other bubble markets) market is going this year and beyond What are your thoughts as to the much-touted doom and gloom for us "little guys"?

Flippers Priced Out of Market Now?

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

15y

At least in my market, things are very cyclical (or at least ever changing)...

There will be periods of weeks or months where we find it difficult to find any properties that meet our criteria (this often happens during the summer and around the winter holidays) and then we'll see weeks or months where lots of great deals hit the market without much competition (beginning of the year and September/October are notoriously good)..

We now try to buy as much as possible during the "good" times, and don't stress about the lack of inventory during the "bad" times, knowing that things will soon change.

For reference, the past two months have been pretty good in my area -- we've purchased three properties and have a couple more we're currently negotiating. I expect in a couple months things will dry up again for a while.

Perhaps if you look closely enough, you'll find the same types of cycles in your market, though they may not line up the same way...

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Bill Gulley

Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes

15y

If your strategy is selling to unsuspecting buyers to get your spread, maybe you're trying to operate in the wrong strategy. The market is not static, you need to adapt to changes and employ methods that fit your market.

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Don Hines

Investor · Little Rock, AR · Member since 2010 · 628 posts · 251 votes

15y

I started making offers again last August. It took almost twenty before I hit on one to close next week. I saw all kinds of goofy stuff during this time frame.....
Counters back at list, lost some to others for list, lost some for $10k over list, ETC. I am not looking at anything over ARV of $130k either. So, it is my speculation that long term buyers are heavily in the market for rentals. I figure I will get another shot at these properties when the fantasy wears off. Some of these deals fell through and are already back on the market.
Don

Flippers Priced Out of Market Now?

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