How to Find Fix-n-Flip Deals in a Shrinking Market
According to the National Association of Realtors®, home prices in metropolitan areas have been accelerating since Q3 2016. In addition, foreclosures have dropped to the lowest level in 12 years, and Q1 2017 saw the strongest three-month sales rate in 10 years. While this is brilliant news for sellers, the growing inventory shortage and rising prices in the housing market are making it increasingly challenging for fix and flip investors to find viable investment properties. However, this doesn’t mean that there aren’t any out there. Keep the following three tips in mind:
Tip #1: Do your research.
You need to know your local housing market inside and out. Use MLS listings to your advantage. Granted, you’ll probably have to work through more listings than usual to find ones that are interesting. Nonetheless, fewer foreclosures and higher asking prices shouldn’t deter you from pinpointing interesting properties and researching them to see if they could be good investments.
Just take into account that with higher asking prices, you’ll also be looking at higher initial investments for your projects. So if you want to finance them, you have to make sure you meet all the financial requirements. Because even if the percentage you have to finance remains the same as in a buyers’ market, the actual dollar amount of your stake in each project will be higher because the properties cost more.
Tip #2: Network.
Especially during inventory shortages, it’s key to have a network of realtors, brokers, contractors, and other local business people who can alert you to interesting opportunities. Sometimes, other fix and flip investors will refer properties to you for a modest finder’s fee if they don’t have the bandwidth to take on the projects themselves.
Make sure to stay in touch with your contacts online by using LinkedIn and other social networks. And never underestimate the importance of in-person networking events at organizations like your local Association of Realtors or Chamber of Commerce.
Tip #3: Hire a property acquisition manager.
In a tight housing market, you usually have to approach more prospects before you find a good deal. Many sellers hold out for better offers—especially when time isn’t an issue for them.
If researching viable properties is taking up so much of your time that you’re not getting around to the other aspects of your business, then you should consider hiring a property acquisition manager. This is a professional who knows how to source leads, research them, and create shortlists of the most interesting projects so you can follow up. While hiring a property acquisition manager is an additional expense, a skilled and experienced professional is well worth the investment.
Regardless of how tight the housing market is and whether there is an inventory shortage, the fix and flip equation remains the same: Find a property, rehab it well, and sell it at a profit. So while initial investments are likely to be higher, the potential profits should be correspondingly higher—and ultimately, that’s what will convince lenders to finance your projects.