The Upcoming Wave of Fix-and-Flip Opportunity
History has shown that markets do not like uncertainty and with the upcoming election and ongoing effects of the pandemic on our lives and the economy, there’s plenty of uncertainty on the horizon.
But if you’re one of many sitting on the sidelines and waiting to take on your next real estate investment project, you might want to reconsider because investing at the right time can result in both short-term and long-term strategic advantages. And for the real estate investor this translates to asset appreciation, growth in rental income; all of which translate to growth in your real estate investment’s equity that sophisticated investors use to borrow and grow and add zeros to their net-worth.
Compelling new studies and respected media sources are indicating there is immediate and tremendous potential for investors who are investing in both single-family and multi-family housing.
A PERFECT STORM OF OPPORTUNITY
Consider the current market conditions. Mortgage rates remain at historic lows, and in many fast-growing markets, demand for homes is high and inventory is unusually low.
Mark Lemmons of the Mark Lemmons Group specializes in properties and the SFR market from north-east San Antonio and up the I-35 corridor to New Braunfels. Mr. Lemmons advises that “inventory is tight and demand shows no signs of slowing anytime soon”, and further “In eight years growing the Mark Lemmons Group I have never seen inventory and demand showing such dislocation ,” he said. “At about two and a half months of supply, the housing market is very strong and we project these fundamentals to continue for the foreseeable future.”
Another sign that the single family residence market is ripe for investment comes from a recent announcement by the country’s largest rental-home company, Invitation Homes, which plans to spend $1 billion on purchasing new single family residences across the country to add to its rental portfolio and 40% of that $1 billion ($400 million) will be deployed buying rental houses in Texas, Arizona and Florida, Three growing areas seeing an influx of residents from California, Nevada, and the north-eastern part of the United States.
In addition, a new report shows that while flipping rates have declined this year, profit margins are up.
A report on U.S. home flipping statistics by ATTOM Data Solutions shows that the flipping rate dropped from 7.5 percent of all home sales in the U.S. in the first quarter to 6.7 percent in the second quarter. However, those that did flip homes were rewarded as gross profits increased by nearly 8 percent from the first quarter to the second quarter, and rose nearly 10 percent over the second quarter of 2019.
Put all these clues together and a promising picture emerges: there’s a very lucrative opportunity for fix-and-flip and rehab-to-rent projects, and those investors waiting on the sideline are creating opportunity for those who are moving forward.
PRIME TIME FOR FIX-AND-FLIPS
“Existing homes under $220,000, which new builds cannot compete with, are ripe for the picking, not only for homebuyers, but for investors who see the supply/demand imbalance happening,” Carter said. “Existing home resales will be competitive in the future both in price and supply.”
Investors may have to hunt for opportunities, but they are out there, and could possibly increase in coming months. As the economic fallout from the COVID-19 pandemic continues, a growing number of motivated sellers may want to sell their homes quickly.
Some investors have decided to wait to enter the market due to COVID-19 concerns slowing down production of both raw and finished materials. Others were waiting to see what would happen in an unprecedented time. While understandable, it’s clear that for those willing to jump in, the rewards could be big.
“To me, everything points to prices going higher and demand for affordable housing remaining high over the next couple years,” Carter said.
KEY LESSONS FOR REAL ESTATE INVESTORS
- People continue to move to business friendly, low/no tax markets like Texas, Florida and Arizona, and Invitation Homes, America’s largest landlord has already raised capital during a pandemic to deploy at least $400,000 in these markets.
- This continuing migration will keep housing inventory tight in many areas thus causing demand to go up, and home prices and rents to do the same.
- Affordable single-family homes (approximately $220,000 and under) are in short supply and high demand in the San Antonio, Texas market.
- Mortgage rates are historically low.
- As the economic fallout from the COVID-19 pandemic continues, there will be motivated sellers whose financial situation has changed, motivating them to sell their homes quickly.
The takeaway: if you’re considering investing in a fix-and-flip or rehab-to-rent, there are advantages to getting in now instead of sitting on the sidelines. Visit with a Corridor Funding loan originator today to learn about marketing to motivated sellers.
Jasen Miller, Managing Member