I have been flipping houses for over 15 years in good markets, bad markets, and everything in between. A lot of people have said you cannot flip houses in today’s market. They say that prices are too high and that you can’t flip in a seller’s market. I think that you can flip in any market if you know the fundamentals of house flipping. I will admit it was much easier for people to flip houses right after the housing crash because there were so many foreclosures and short sales available. But, you do not need short sales or foreclosures to flip houses. There are many other ways to find deals. In fact, I think it is almost easier to flip houses that are not short sales or foreclosures because of the way banks sell houses in today’s market. You still have to be careful when flipping houses in a hot market, but you should be careful flipping in any market.
Why do people think it is tough to flip houses in a hot market?
After the housing crash, many people started to flip houses. It was not terribly difficult to find a great deal because there were so many foreclosures. Many investors were wary of flipping because prices had dropped so much and they were scared of another crash. It was a really easy time to flip because there was a lot of inventory and not as much competition. As the market became stronger, more people jumped into the real estate investing niche. A few years later, there were a lot of investors and not nearly as many great deals. Some people assumed they had lost the opportunity to flip and moved on to other things. There were no longer many foreclosures, so how could they get a good deal?
I flipped 26 houses in 2017, and I am on pace to break that mark in 2018. I very rarely if ever flip foreclosures or short sales. I have 14 flips that I am working on, and I did not buy any of them as a foreclosure or short sale. When I hear people say they cannot flip houses because there are no foreclosures, I know they are looking in the wrong places. I bought three flips this last Friday and got three more under contract over the weekend to buy. Here is how I found the deals:
- I bought one of them through a real estate agent who gave me first dibs at a house that her seller did not want to be listed.
- I bought two from the MLS. One of those was an estate sale that I was able to buy for $50,000 less than the list price.
- I got three under contract from my direct marketing campaign.
Is my market in Colorado really that hot?
I also hear from other investors that they live in a hot market where they cannot flip houses. I am in one of the hottest markets in the country in Colorado. Our median price in my area increased from $110,000 in 2012 to over $300,000 today. We have record low inventory on the MLS and a lot of investors trying to find deals, but that does not mean there are not deals. It is tough to find deals, but a seller’s market has its advantages as well. It is fairly easy for me to sell most of my houses flips, and many sell for above asking price. It is also easy to get wrapped up in a seller’s market and shy away from the fundamentals of flipping. Just because the market is going up does not mean I assume it will keep increasing for me to make money.
Why do you need to stick to certain rules when flipping houses?
I have also bought many houses from wholesalers. A wholesaler finds a deal and then sells it to another investor who will then rent it or flip it. I have many wholesalers who try to sell me houses, and many times I will not pay enough to get those deals. They have other investors who will pay more, and they are always using that to try to get me to pay more for houses. They will tell me that I have to pay more or my profit margins are too high if I want to get the deal. I do see other investors in my area paying much more for flips than I would pay. Just because other investors are doing it does not mean I need to pay that much or it is smart to pay more in a seller’s market. You never know when things could change.
I do not anticipate the housing market will crash again, but I could be wrong, and I have to protect myself in case things change. I never count on prices to go up to make my money. I also have to make sure I am realistic about the costs that will come with flipping.
- Purchase price
- Buying costs
- Carrying Costs
- Selling Costs
I also always assume I will have more repair costs and hold a property longer than I think I will. While I may not be getting as many houses from wholesalers I did a year or two ago, I can still find deals. I always make sure I am deciding the price that makes sense on a flip, not a wholesaler. Often the wholesaler is not from my area; they do not have the right repair budget; and they are not including all the costs when they come up with their asking prices. While you can flip in a hot market, that does not mean you have to overpay for houses.
For more information on flipping house, check out my book: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.
What are some of the challenges of flipping in a hot market?
While you can flip houses in a seller’s market, I never said it was easy. It is not easy to flip houses in most markets, except the extremes we saw after the housing crash. Even if prices drop again, I don’t think we will see any easy market to flip in. The banks have changed the way they sell their houses. They no longer just want to get them off their books. They want to get as much money for them as they can just like any other seller would.
I have had my fair share of issues while flipping through huge price increases in my market.
- As housing prices increase, so do the purchase prices. Flipping houses is expensive, and all the costs go up when housing prices go up. The purchase price, carrying costs, financing costs, and repair costs all increase. I have had to find more money to flip as many houses in a hot market. I have found more private-money lenders, hard-money lenders, banks, and used more of my own cash.
- As I discussed earlier, other investors may get desperate and pay too much to get a good deal. That can make it harder to find flips.
- With low inventory, some people who are buying a house to live in are willing to buy fixer-uppers. People who will occupy a house will usually pay more than an investor. This also makes it tough to find deals.
- I have to constantly adjust what I will pay for houses because prices are increasing. I cannot assume I know what prices are in certain areas. I have to pull comps and evaluate the market for every deal that comes up. Even I am surprised what houses are selling for in neighborhoods that I am extremely familiar with.
- In a hot market, it is common for appraisals to come in low. I have had at least five appraisals come in low in the last year. I cannot assume that every house will sell for top dollar even if buyers will pay it, thanks to low appraisals.
- In hot markets, there are usually more investors trying to buy deals. Real estate investors know they can sell the houses and want to be in that market. There is much more competition for house flips now than ever before in my career.
Below you can see a video of my most recent flip.
Flipping houses is not easy, but that does not mean it is impossible. The market does not dictate if you can flip houses or not. The ability of the investor dictates how many houses they can flip and how much money they make. Some markets may be easier to flip in, but they all have pros and cons. I know investors who flip million-dollar houses and make a ton of money doing it. Others flip $50,000 dollar houses and make a ton of money doing it. Don’t let others discourage you from flipping houses if that is what you really want to do.