House flipping – the art of purchasing a property, then renovating it to sell for profit – has captured hearts and minds in the last decade. Hit TV shows such as Flip or Flop, Flipping Out and Flipping Vegas inspired a generation of new real estate investors by revealing an accessible way to make a quick buck.
But what goes up must come down, and the recent house flipping boom was facilitated by the 2008 housing bubble burst, which flooded the American market with unsold properties. A decade on, the tide started to turn when profits fell by two percentage points in 2019 to an eight-year low. Now, the coronavirus pandemic throws fresh challenges into the mix.
So, what could this sector look like in the coming months and years? Here are a few possibilities.
Scenario 1: The rise of ‘flip to keep’ investments
House prices could fall sharply in mid-2020 and then recover rapidly as part of a ‘V-shaped rebound’, one of the market scenarios set out by Realtor.com. This could spell huge opportunities for investors – but they’ll need to wait longer to cash the rewards. Renovations may be followed by a period of ‘flip to keep’, whereby investors use or rent properties prior to selling.
The quality of renovations may be driven upward as a result, since houses will need certain ‘liveable’ add-ons, such as the satellite dishes that come with a phone and internet bundle, charge points for electric toothbrushes and lights in the closet. Living in a flipped house creates an opportunity to test out the water pressure and broadband connectivity for a confident result – and the delay will allow a stretched construction industry a little space to complete the work.
It carries risk, sure – but ‘flip to keep’ investments could reap dividends in the event of a quick economic recovery.
Scenario 2: Flipping flops – then soars beyond 2021
If property prices remain dipped throughout 2020 before recovering slowly in 2021 – as part of the alternative ‘U-shaped’ forecast set out by Realtor.com – then the potential for flipping investments may take a significant hit before slowly recovering.
Crucially, a lengthened period of sustained value growth could create a second boom for America’s favourite type of property investment project. After all, rising prices spell heaps of potential.
Scenario 3: The end of quick flips as we know them
Real estate value can’t be forecast like the weather – for one thing, the value of property is intricately related to the amount of money in the economy, which depends on factors such as unemployment rates.
If the wider economy fails to bounce back from the impact of the coronavirus pandemic – or if it is reclosed, causing a ‘W-shaped’ bounce back, then real estate prices may remain low or volatile. This could pose a threat to widespread flipping as we know it.
Viable investments would still exist – but they would come with new levels of risk, and the field would be harder to break into. Investors would need to be equipped with a great deal of patience to make it big in such a market.
All hope is not lost, however – flipping is a resilient form of investment which is more robust than many. After all, there’s always demand for bricks and mortar if you wait long enough.
The main thing to watch is equity, since a dip into negative territory has the potential to turn flipping ventures in the wrong direction. However, as with all investments, riskier times can lead to fruitful rewards – if the market swings in your favor.