Can You Flip Properties in a Hot Market?

Question

Hey guys,

I've only been a full time rehabber for the past two years. I was wondering for all your veterans, in a hot market or upward trending market, is flipping still as easily possible as it is today? I don't want to say flipping is easy, but I think you guys know what I mean.

Today, all these banks and distressed sellers are so willing (most) to sell for a good and realistic price, what happens when "nice" properties outweigh Fugly properties?

I was just brainstorming what's going to happen 5 years from now and this crossed my mind and would love to hear what you guys think. Thanks!

J Scott · Answer

I've never flipped in a hot market (only 3 years for me), but here's how I look at it:

It's rarely a good time to both buy AND sell properties, but for flipping to be profitable, you only need one of those -- either you need to be able to BUY at a major discount or you need to be able to SELL at a major premium.

In the current market, it's easy to buy, but hard to sell; therefore, you're making most of your money when you buy.  In a hot market, it's easier to sell than to buyer; therefore in a hot market, you're making most of your money when you sell.

Again, I don't have direct experience with this, but given how many people seemed to be making lots of money prior to the recession (especially if you believe all those TV flip shows :), it seems like making money in an up-trending market is probably as easy (if not easier) than in a bad market.

Btw, I would guess that making money in a stagnant market is the toughest...which is why I have a feeling a lot of new rehabbers are having trouble breaking into the business -- the past year has seen a very stagnant market in most areas of the country from what I can tell.

Jake Kucheck · Answer

Will... are you trying to say that all of us Orange County guys look the same to you?

Jake Kucheck · Answer

I'll add a comment that Bruce Norris made when he was speaking on Wednesday.

What makes a lot of sense is that flipping in a "hot" market is more forgiving.  If you screw up, and your rehab takes longer than you thought, that will be made up by the fact that the market has continued to go up, so you probably won't lose money and you might even make more.  If you screw up in a stagnant or down market, the consequences are more dire.

Then again, if you're Jason, or someone else who buys right more often than not, you've factored screw ups into your purchase price, then you can make money even on those deals.

Tony Nguyen · Answer

So far in this thread, from what most are saying, flipping in a slow market is more difficult then a hot market. If that is the case, I think it's probably safe to say if you can flip in a slow market, you'll be ok during a hot market, assuming you don't get too cocky try to rule the world. Of course some adjustments need to be made, but someone up there said it best - if you screw up in a slow market, you'll pay for it dearly, but if you screw up in a hot market, you may even be rewarded!

Scott Hubbard · Answer

Although your certainly better off selling in a hot market, you also need to realize both your purchase and rehab costs will also increase through price appreciation and increases in material and labor costs.

In my opinion, a hot market is more risky for serial flipping becuase at some point the market will cool due to slowing demand.  As prices and expenses increase, so does your capital investmen. More money in play equates to more risk.

Will Barnard · Answer

Sorry Jake, I have no idea why I typed Mitch and not your name - Jake. My apologies. Glad to see you fired back with a sense of humor, I love it! Vote for you.

Will Barnard · Answer

In 2009, CA and many other areas of the country expereinced a very rare, but profitable market for flippers. What we had was a market saturated with REO and short sales and very few standard sales. We also had very low inventory levels as banks were not releasing a ton at a time and we had an influx of willing and able buyers due to the tax credits and stabalization of the financial system (somewhat) from the 2008 government bailout. Those market conditions created a means for a flipper to buy a distressed property at a great price, fix it, then sell it first day on the MLS, often will multiple bids because buyers were standing in line to get the tax credit and the one or two standard sales that were in that area, one of them being mine.

Today, we have an unstable market which is currently declining so if you cant get in and out inside of 4 months, you need to factor in depreciation into your buy price and you also need to allow for longer listing times as there are much fewer buyers out there and much more inventory avialable.

In a hot market, prices are increasing so a longer hold time does not hurt you, it usually helps you (as Mitch stated in his quote of Bruce Norris). In the bubble, we had a very hot market, although artificial, and any monkey could throw a dart at the board, say, Ill take that one, and sell 3 months later for a $50k profit without doing anything. those times are gone and I doubt they will come back in our lifetimes.

In a standard hot market, prices do not increase that rapidly so flippers need to find a way to buy at a discount, then sell at the premium price after rehab.

In a stagnant market, which we had from end of last year to approx February of this year, it was more difficult to find a deal worth doing and if you did have one, harder to find a buyer too, although, when you did, still a profitable position so I would summarize that a good flipper can make money in any market so long as he/she has the connections and abilities to get the deals and get them sold.

Rusty Thompson · Answer

The consensus is def. in on this, but I will add my two cents. I agree that any time is a good time to flip, except in a stagnant market... I think the difference we are seeing right now is that this is a unprecedented time in history to buy and hold. That is the change that we are really seeing.

Rusty Thompson · Answer

The consensus is def. in on this, but I will add my two cents. I agree that any time is a good time to flip, except in a stagnant market... I think the difference we are seeing right now is that this is a unprecedented time in history to buy and hold. That is the change that we are really seeing.

Ophelia Nicholson · Answer

My experience flipping is limited I'm finishing up my first offical flip but I have sold houses while the market was hot and made money without realizing I was flipping. I have been in mortgage for over 11yrs so here is my take- close to what J Scott said.

There is money to be made when the market is hot, there is money to be made when the market is stagnant or cold. In a down market or stagnant or whatever we have now- it is harder to sell houses even though you have so many people willing to sell. One of the problems is REO,fugly houses are well fugly and financing for them is alot harder than it is in a hot market.

Now a house that is in decent condition will sit on the market for 6 months and a 200k rehabbed house needs to look like a 1/2 mill dollar house to sell. At this point people who are not willing to put out money and make houses more attractive, give bigger concessions have a harder time. The concept now is buy at a great price, do a great rehab and sell.

In a hot market the girl from 711 can move a house after purchasing for $100k and hoping to unload for $150 without paying the first mortgage payment and not doing any repairs. I doubled my money selling two houses in 2005 and 2006 did zero repairs. Now I'm spending 5k on cabinets just to make sure a house sells.

I think as market changes so does an investors stratergy. By the time the market is hot again you should have mastered buying at a good price and doing a great rehab to still be ahead of the market.

Can You Flip Properties in a Hot Market?

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