Home of Flippers Look for “Creative Deals” as high prices cool the market | Jobi Cool

The real estate market continues to contract as real estate investors struggle to find deals. High interest rates are to blame, according to a new survey by real estate consultancy John Burns.

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Fix-and-flip investors have been forced to adjust their strategies as the market slides rapidly toward recession, according to a new survey shared with Inman.

Investors say they still face intense competition for flipped houses. But as they buy those homes, their resale expectations look increasingly bleak, according to a new survey by John Burns Real Estate Consulting and interviews with investors.

With high interest rates, historically low but rising inventory and a shrinking buyer pool, idle investors are facing pain along with the rest of the real estate market, with many expecting to be in a “frozen market” for the next six months.

“I’ve been hit hard the last few months,” said Peter Ledger, a Utah-based investor who is fixing and turning around. “I have one house that I’m losing six figures on.

As with much of the industry, the days of easy money and big profits are largely over, and investors are left to evaluate their next steps.

“For the past two years, people were able to tinker and flip and make a ton of money,” said Jordan Fullmerinvestor in Huntsville, Alabama, with Momentum Property Solutions.

“Market-wise, it’s definitely changed,” Fullmer said. “In terms of investment awareness, you just have to adapt and change your strategies.

John Burns conducts a quarterly survey of hundreds of remodeling and flipping investors across the country. It completed its third-quarter survey in mid-October, meaning the results reflect flipper sentiment following a rapid market shift and downturn.

It found the pain has been widespread, with more than half of respondents saying homes were mostly selling at lower prices than three months ago.

“Sales have slowed down significantly as high end buyers have shrunk for unmodified homes,” said Alex Thomas, senior research analyst at John Burns Real Estate Consulting.

The survey measures sentiment and reports on the Fix and Flip Market Index. A reading of 100 is a very strong market. A reading at or below 50 means the market is contracting. The index dropped from 83 in the first quarter of the year to 53 in the third.

Buyers remain low due to high prices and high interest rates, and sellers have largely avoided selling at lower costs, the report said.

What that means on the ground is that the margin of error has been reduced, Ledger said.

Ledger bought a house in the suburbs of Salt Lake, unseen in the red-hot market, and only later discovered its short basement. When inventory was scarce and competition high, Ledger might have been able to turn the house around and sell it at a healthy profit.

Before the shift, “you could make a thousand mistakes and still make money,” Ledger said. “This is not normal in most markets. You make one mistake and you lose money. We’re back there where you make one or two unfortunate mistakes and you’re in the red.”

Finding creative deals

The survey found that flippers expect the market to shrink amid rapid price declines, difficult financing and a greater inventory of homes for potential buyers to choose from.

Flippers are now bidding less for homes, renovating homes with the intention of renting them rather than selling them, or putting them off the market altogether, the survey found.

“We had some comments from flippers saying, ‘Now is not the time to sell, I’m going to buy and hold and rent,'” Thomas said.

Ledger and Fullmer are considering policy changes rather than sitting out the market altogether.

Both told Inman that they have what is commonly referred to as an innovation agreement with the homeowners.

This is a type of risk policy that does not involve the flipper buying the house outright and bearing all the risk. Some are targeting long-term homeowners who may have a lot of equity and creating a profit sharing agreement when the home is sold.

“We’re basically working with the homeowner to fix it up and get it sold,” Fullmer said. “So it’s a bit of a different strategy compared to traditional cash purchases.” It makes more sense in this kind of market.”

Now seems to be the time to avoid risk, the survey said. Seventeen percent of flippers reported sales prices for existing homes fell by more than 10 percent in the last three months. Only 7 percent said that home sales prices had increased.

“For me, in particular, I’m not buying any flippers anymore unless it’s through a creative purchase,” Ledger said.

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