Fix & Flip for the Retail Buyer
Fix & flip real estate investment has been a popular
strategy throughout the period from the crash in 2007 right through the
present. This has been primarily due to
the availability of bargains, mostly foreclosures in need of rehab and repair
before sale. However, the majority of
fix & flip investors have been selling mostly to other investors, rental
property buyers at the head of the line.
There are solid reasons for this trending investment
strategy. The crash pushed a whole lot
of people out of their homes. Lenders
became tougher in approving mortgages.
The economy hasn’t been great when it comes to good jobs for college
grads. Even when they can get a job in
their chosen field, there is a lot of concern about keeping those jobs and
seeing pay raises in the near future.
All of these factors have been pushing people into rental units, and
rents are rising around the country.
Prices are rising due to competition in the foreclosure
market and investors are having to work harder to get those bargain buys that
feed the fix & flip strategy. There
are still good deals out there that will cash flow as rentals though. But, are there housing and economic factors
that could make fix & flip for retail more appealing? It’s been tougher in the past, as there are
higher costs of marketing and real estate commissions in many cases.
The news these days is all about the continued lack of
interest from first time home buyers.
Many in the millennial generation are still living at home or they’re
renting. High student debt and low cash
savings for down payments are part of the problem. There is also a general lack of interest, as
younger generations don’t see a home as the investment opportunity their
parents enjoyed.
Recent improvement in the employment picture could bring
about some renewed first time home buyer interest. Lower down payment loans are surfacing
again. In some markets new home builders
are building starter homes and subsidizing down payments and mortgage interest
rates. Fix & flip investors may
begin to see opportunity in their markets for retail sales. Profits can be appealing, as the retail buyer
isn’t demanding a discount to market value like savvy rental property
buyers. But, there are some new things
to factor into a retail fix & flip:
·
Right
home in the right location: Rental
property buyers can have different location requirements, and retail buyers
will want to live in stable neighborhoods with family-oriented amenities.
·
Home size
& price range: There are two
target markets here:
o
Entry
level first time buyer: This buyer
will normally want a smaller and less expensive home. They may need to stay in lower price ranges
for affordability. This will make the
number-crunching more important, as the profit margin will be smaller than with
larger or more upscale homes.
o
Upscale
or move-up buyers: This could be a
really lucrative market for the fix & flip investor. Locating a foreclosure or home with repair
issues in a neighborhood with higher priced homes will increase the profit
margin potential. More upscale materials
and finishes increase the profit in the rehab part of the deal.
·
Holding
and marketing costs: Unlike having a
waiting rental home buyer on your buyer list, selling at retail will normally
take longer. It’s more difficult to
entice a buyer before the rehab is complete, so longer time from purchase to
sale is normal. As for marketing costs,
some investors can do their own and sell direct, while others will use a real
estate broker. Each of these approaches
carries costs that aren’t part of a wholesale fix & flip deal.
If your market is beginning to see more retail buying
activity, and if prices are rising, it could be time to move away from the
wholesale mentality toward the consumer buyer.
No comments:
Post a Comment