Should I not flip houses right now since prices are plummeting?

Question

The price for every house in my market has been cut by about 6%… Not just houses, but vehicle prices are being cut 20%. And the Fed is planning to raise rates AGAIN. WHY?

Scott Trench · Answer

I'd recommend that you pick up a copy of "Recession-Proof Real Estate Investing". The e-book is $10.99. I just re-read it and it is fantastic, addressing your question extremely thoroughly.

To summarize some key points and address your questions directly:

1) WHY the Fed is raising rates:

The Fed's first job is to combat inflation. They target a 2% inflation goal, and they have shown throughout history that they will have no mercy on the housing markets or stock markets in order to beat their enemy of inflation. Do not underestimate them and their willingness to do whatever they feel they need to do to beat inflation and preserve the dollar as the world reserve currency. Yes, they conducted head scratching monetary policy for the last 10 years, with quantitative easing and low rates persisting long after most of us felt was needed. Doesn't mean that they can't or won't sharply reverse course. Paul Volcker put rates into the upper teens in the 70s and 80s to beat inflation, and no true obstacles prevent Jerome Powell from doing the same.

They do not care about your fix and flip project. They care about beating inflation.

Their second job is to combat unemployment. The minimum wage is $7.20 and hasn't budged in a decade. In real dollar (inflation adjusted terms) it's the lowest the minimum wage has been since the 1950s. It's hard to see how Fed policy is going to lead to mass unemployment in the short-run with the minimum wage so low. More reason to respect them.

2) Should I not flip houses right now?

Great question. I'd be really nervous as a house-flipper right now. The last five years have been so good to real estate that the worse you are at flipping, the more money you made. Think about that. If you are terrible at this business, and spent 18 months completing what should have been a 6 month project, you made 20% more in appreciation than that guy who completed his project efficiently!

J Scott says it better than I can in his book, but essentially, I'd be pivoting to wholesaling, or considering only those flips that I can complete in really narrow timeframes - really quick value add like paint, and cleanup, etc.

Of course, Fed policy can reverse and go the other direction just as easily, and flippers completing bigger projects may make a killing. Or, you might be able to find a deal with so much value add potential that the market conditions don't matter.

But, yes, I think that many investors are wise to be a bit more wary of flipping and development strategies in the current climate.

Nick C. · Answer

I think we're plateauing where we are. My opinion is that good product will still sell. House flippers have been able to cut corners and put junk on the market and get multiple offers in 30 minutes. Those days are gone. The crappy, overpriced houses will sit and collect dust and corner cutting house flippers will blame the market, the economy, interest rates, etc. The quality flips will sell.

Bill B. · Answer

I think you need to move to a different market since 99% of America still has rising home prices. I on the other hand should buy a car where you are. Since car prices are also still waaay above msrp here. They certainly haven’t dropped. Luckily they don’t have any inventory to sell anyway.

You might get more detailed help about if there are any good neighborhoods left in your market or if everyone has left by placing your market in your profile. That way locals can reach out to help you.

Bruce Woodruff · Answer

Generally speaking, no, wait a year and see what is happening then. BUT - there are always deals in any market. Always. So this is a good time to keep your eyes open. A lot of potential investors who would have been ready to jump a couple years ago are going to be too nervous to jump right now....which usually means a property or two can be available to you that will not have the feeding frenzy going on like it would have a while back.....

Crisselda Clark · Answer

I'm holding on flipping, working on my other streams of income. Keep as many tools in your toolbelt as an investor, I like to keep my portfolio in different markets with different strategies. Just pay attention to the market, when the bounceback starts it will be time to flip again!

Steve Vaughan · Answer

If by flipping you mean higher end, I would be careful.

I've had my eye on a beautiful dream house for 3 months.  Pool, hot tub, outdoor kitchen, theater room, tiled wndow sills, etc.  Listed at $799k in April. Not too crazy I didn't think.

I put in a 'back-up' soft verbal offer via e-mail (I knew the LA) of $675k with seller financing  a month ago when the price dropped to $750k.

It's now dropped to $699k and I'm concerned I'll be catching a falling knife.

Point is, this seller has been there for decades and doesn't even need the proceeds to purchase their retirement ranch in MT but a flipper would've been absolutely decimated.

https://www.zillow.com/homedet...

Jeremy H. · Answer

Why is the fed raising rates? Have you seen the prices of nearly everything in the past 2 years? That's why. Imagine being on this track for another 2 years, 5 years. You wouldn't be able to afford a pot to piss in before long.

Tim Ryan · Answer

Hang tight until next year. Save your funds now. I saw way too many dumb purchases over the past couple years. Those will be foreclosures (remember those - they are coming back)!

Bruce Woodruff · Answer

So you don't think there is a run-down property out there that could be had at a steal price right now?

Eliott Elias · Answer

If you’re still finding good deals why stop buying? When others are greedy be fearful, when others are fearful be greedy

Should I not flip houses right now since prices are plummeting?

Most Popular Reply