Friday, 25 March 2016
RealtyTrac.com has just released their annual house flipping report for 2015. The report showed that 179,778 single family houses and condos were flipped in 2015. This accounted for 5.5% all home sale transactions that year. This was up from a 5.3% share of sales in 2014.
For this report RealtyTrac counted a flip as "defined as a property that is sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data collected by RealtyTrac." The data was collected from 950 counties accounting for more than 80% of the population.
The trend indicates that there is a larger number of smaller investors doing fewer flips each. The total number of investors who completed at least one flip was the highest since 2007. However, the average number of flips per investor was at the lowest level since 2008. This is interesting and in a way gratifying. I would hope that my work in educating new investors has helped more of them to get started and successfully flip houses.
This is also interesting because opportunities for flipping aren't as plentiful or easy to locate as they have been in the recent past after the market crash. These newer and less active investors are obviously doing their homework and due diligence. Some performance numbers from the RealtyTrac report show it:
• Homes on average were purchased at prices 26 percent below estimated market value.
• The homes were sold at an average 5% premium over estimated market value.
• The average gross profit per flip was $55,000, a 10-year high.
• The average was down to 1.63 flips per investor.
These are conservative numbers, and that's not a bad thing. When new investors are jumping into the market and prices are rising, there will be fears of over-speculation. However, these conservative margins tell us that they're being careful and profitable.
I think that we'll see even more new investors in 2016, and that there will be a low number of transactions each on average. There are a number of reasons. Of course there has been plenty of promotion of flipping, with TV shows all over. The gyrations of the stock market, ho-hum job markets, and a generally slow economy have definitely been contributors to more interest in real estate.
It's not unreasonable for us to believe that all of the promotion and exposure on real estate investment and house flipping has been a part of these numbers. However, we should also be happy that there has been enough good solid education in how to do it right that we're seeing this success data. I hope we'll build on the new investor interest and keep them successfully growing their businesses.
Thursday, 17 March 2016
I don't think anyone who has ever thought about buying or selling real estate will not understand the "location, location, location" thing. Real estate doesn't move, and there is a finite supply. Where a home is located has a lot to do with value and what buyers will pay to live there. Sometimes the location factor can have a greater impact due to the neighbors. I don't mean other residences either.
There has for years been something called the "Starbucks factor." Data shows that homes near a Starbucks carry higher values than those farther away, even when other amenities and features are the same. Sometimes a new Starbucks is an indicator of neighborhood change or gentrification. Their market research is amazing, and often local real estate trends are uncovered early.
Now there is more information surfacing in reference to organic and specialty grocery stores. Trader Joe's and Whole Foods are examples. Data is accumulating that reinforces the trend for home values to increase faster in close proximity to these businesses.
One reason could be that the higher cost of organic food means that regular customers must be in higher income brackets. Of course, they will also be willing and able to pay higher prices to live where they want and enjoy their favorite amenities. When a home buyer isn't struggling to reach a price level for a particular neighborhood, prices tend to rise faster than in other areas. When home buyers want the best produce and niche foods, we find that they want to be near the places where they can get them.
Okay, what does this mean for home buyers? Of course, if you're trying to make a decision about neighborhood and can afford it, you may want to place more emphasis on the home closer to one of these upscale or niche businesses. Over time, your investment should increase in value faster, or at least that's what data is telling us.
Even more exciting, especially for investors, can you find a Starbucks, Whole Foods or Trader Joe's breaking ground? This is especially true if it's the first of this group in the neighborhood. They're paying high dollar market analysts to gather demographics to support the significant investment they must make to build their new business. Why not take advantage of their due diligence if you can buy in the area?
For a double whammy, if you can find a neighborhood about to go through change, and these businesses are moving in, you may be able to pick up a bargain that will have an almost immediate value bump as the word gets around. This could be a great wholesaling or flip opportunity if you get there early enough.
As the glut of foreclosures continues to decline, you can create some opportunity of your own. A retail flip may be worth some rehab work. You may even find a rental home investment to be a great strategy. There is always opportunity if you keep up with developing trends, and this is one that seems to have legs.