Current Trends in the Fix-and-Flip Market

The location of a property is always key, especially to investors looking “fix and “flip” a single-family residence. Some new reports are showing that older homes in still-desirable markets …

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The location of a property is always key, especially to investors looking “fix and “flip” a single-family residence. Some new reports are showing that older homes in still-desirable markets may offer key opportunities for flippers to get creative. These older homes can sometimes be renovated with current finishes and features that make them more attractive to homeowners.

The rehab market is still a significant driver of the health of the housing market overall. A report by real estate data provider RealtyTrac found that houses that were “flipped” still represented approximately 4 percent of the total single-family homes sold in Q3 2014.  Of all the homes sold, almost 26,950 single-family homes were flipped; and while this figure represented a decline from previous periods, the reported gross return on investment of these homes slightly increased.

The high average profits per flip in the recent period demonstrate that flippers are still filling an important niche in an aging housing market with historically low levels of new homes being built.  “The most successful flippers are buying older, outdated homes in established neighborhoods and rehabbing them extensively to appeal to modern tastes,” said Daren Blomquist, vice president at RealtyTrac. “The markets with an increase in flipping tend to be those with older, distressed, inventory still available that flippers can often buy at a discount and add value to. Those discounted distressed properties have become harder to find, but a recent jump in scheduled foreclosure auctions could provide more fodder for flippers in the next three to six months.”

Recent Increase in Foreclosures

Mr. Blomquist was referring to RealtyTrac’s recent announcement that foreclosure filings in October 2014 increased 15% from the previous month. These filings – which include default notices, scheduled auctions, and bank repossessions – covered over 123,000 properties nationwide.   The auction schedules alone increased more than 20% from the previous month.

October can be a seasonally high foreclosure month because banks try to get ahead of the usual holiday foreclosure moratoriums. “But the sheer magnitude of the increase this year demonstrates there is more than just a seasonal pattern at work,” said Mr. Blomquist. “Distressed properties that have been in a holding pattern for years are finally being cleared for landing at the foreclosure auction.”

Increases in Remodel Value-to-Cost Ratios

Some data exists to show that the value-to-cost ratio for the average project may have increased approximately 10% as compared with 2013 figures. Older homes may thus represent a good opportunity for flippers, provided that the more fundamental infrastructure of the house remains in good shape.

Some have suggested, for example, that kitchen remodels may be a good use of rehab funds – a prime target for investors in older homes. Indeed, other studies have shown that minor kitchen remodels and deck additions have been coming in with positive return-on-investment figures in many cities

Flippers do not have to undertake a complete redesign of the kitchen to get the most value out of their renovations. Instead, they could give the kitchen a facelift, which could include replacing outdated appliances for newer models. When it comes to deciding on replacement appliances, flippers might consider appliances that have advanced features like convection ovens or even Wi-Fi connectivity.  

Another minor kitchen remodeling project can be refacing or refinishing kitchen cabinets. This task can take time, but may ultimately be more cost-effective compared to the replacement of cabinets in their entirety. Finally, the work surface of the kitchen is integral to its overall utility. Installing durable countertops that will stand the test of time can be another source of value in renovating kitchens in older homes.

As always, flippers should pay attention to the projected cost-to-value ratio of each of these possible projects. If the tradeoffs appear to be worth it, then flippers should consider one of the new online lending platforms as their source of financing for the project. These platforms make online lending fast and simple, and use technology to provide not only competitive pricing and great leverage but fast and consistent answers. 

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