Last year was a landmark year in the history of house flipping. During the first quarter of 2020, the flipping rate increased to a 14-year high and more houses changed hands for cash since 2016.
Yet, the returns on house flipping slumped to the lowest rate in 9 years. By the last quarter, the situation reversed, with the highest profits recorded since 2018 amid a decline in house flipping activity.
Against this background, it’s impossible to predict what 2021 will bring, but here’s what experts expect in the realm of fix & flip for the future.
A New Age of Fix & Flip
As the pandemic rages on, more businesses are abandoning their buildings in favor of work at home solutions, or downscaling to smaller operations. For some, relaxed restrictions have brought welcome relief, but many others have opted for bankruptcy.
That means there’s going to be a huge variety of unwanted commercial space available in the future. This opens new avenues for fix and flippers looking for ways to flex their refurbishing muscles.
Adaptive reuse means converting unused real estate properties into something useful and desirable. For instance, it’s easy to re-imagine abandoned hotels as alternative housing options, nursing homes, or even healthcare facilities.
Old retail buildings are easily converted into warehousing solutions or distribution centers, provided you can get around city regulations and zoning challenges.
With a little imagination and a hard money lender to finance the project, there’s no end to the creative solutions possible if you can get your hands on an affordable abandoned property in a good area.
A new administration always means changes are on the cards. Yet, barring a national moratorium on foreclosures, investors expect a wave of foreclosures soon.
Data analysts reveal that mortgage delinquencies were at 6.4% in November, which equates to millions of houses that might go under the hammer if foreclosures proceed.
While the government’s done a lot to help ease the pressure on financial markets during these trying times, they can only keep this up for so long.
Eventually, banks will have to take steps to recover what’s owed to them. One way to do this is by selling delinquent loans en masse, and this is when astute investors can take advantage of the situation.
Assuming that the pandemic will end during 2021, investors won’t have to hold onto these properties for too long before the real estate market bounces back.
It’s an ideal opportunity for fix and flip enthusiasts to gain returns from cheap properties without having to invest too much in improvements.
Real estate inventory declined across the board during the pandemic. Many homeowners took their properties off the market at this time due to various factors. These are:
- Unwillingness to move during the pandemic
- The belief that people would stop buying houses at this time
- Reluctance to invite strangers into their homes for open-house showings
Yet, many homebuyers continued their search unabated, resulting in a huge discrepancy between supply and demand.
Nobody expected demand for housing to escalate the way it has during a global pandemic. In fact, most forecasters expected the real estate industry to crash and burn within months.
However, the unequal ratio between supply and demand has driven prices up in the middle of one of the worst recessions in decades. Industry experts expect this trend to continue until at least mid-way through 2021.
These two factors bode well for fix and flippers who can get their hands on foreclosures or other reasonably priced homes.
The fix-and-flip industry is bound to rebound strongly amid all these opportunities. So those who’ve stuck it out during the roller coaster ride of 2020, could see their rivals back on track this year.
That means, fix and flippers will need to do the math carefully on each project as demand among homebuyers continues to surge and investors return to the market.
A Decrease in New Construction
New residential sales have been on a downward spiral since February 2020, and as a result, new home construction’s tapered off.
People still need somewhere to stay though, so experts predict an uptick in homeowners looking for established family homes. Rental demand should soar too as people wait to see what happens with the virus situation this year.
That means landlords who manage to offload struggling multi-family properties could be in the market for easier-to-maintain, reasonably priced single-family homes.
Those landlords who don’t sell are likely to increase rentals as soon as they can in the hope of recovering some of their 2020 losses. That means some renters might start to view buying their own home as a more attractive and affordable option than paying someone else’s mortgage.
Now’s the perfect time for fix and flippers to invest in cheap, distressed properties, refurbish them, and put them back on the market in time for the inevitable economic recovery or re-employed workers.
As vaccines become more readily available, and the pandemic subsides, new construction will resume. Fix and flippers have much to gain and everything to lose by acting with undue caution at the moment.
How to Find Worthwhile Properties in 2021
Despite these advantages, you’ll still need to call on all your experience and know-how when selecting suitable properties for fixing and flipping. So, what’s your best course of action for buying a fix and flip property in 2021 and selling it at a profit?
The Right Home at the Right Price
With house prices soaring as inventory declines, cheap properties are becoming harder to find. Some of the best places to look for potential bargains include:
- real estate auctions
- direct mail advertising
- public records
- expired listings
Creating and maintaining good relationships with attorneys and agents is another shortcut to the best deals.
It’s wise to remember that plenty of city dwellers are fleeing built-up areas in favor of more remote neighborhoods.
Often, housing prices in these areas are more affordable than in previous urban hotspots. So, you should consider looking a little outside of your usual stomping grounds for investments.
There are still great deals to be had in the real estate market if you know where to look.
Calculating Costs in Uncertain Times
The 70% rule still applies in 2021. That means you shouldn’t pay more than 70% of the homes after repair value minus the refurbishment costs.
So, if you expect to sell a home for $100,000 and you estimate your costs at $10,000, you shouldn’t pay more than $60,000 for the original property i.e. $100,00 x 70% – $10,000 = $60,000.
Don’t guess the costs involved. Get estimates from reputable contractors before you start your calculations.
Likewise, you need to take property values in the area into consideration, so consult a real estate valuer about how much you could expect to get for the home. Remember to include closing and holding costs in your calculations too.
Of course, this exercise is fraught with risk in ever-fluctuating real estate markets, so be sure to include plenty of leeway in your calculations.
Financing Fix and Flip Projects in 2021
If you’ve been successful in the house flipping game until now, you should have some equity to work with. However, if you’re going to be fixing up homes and holding on for better times, you might need a little extra right now.
The best places to find financing for fix and flip properties are:
- 203k loans
- Conventional mortgages
- FHA mortgages
- HELOC – Home equity line of credit
- Hard money loans
- Owner or seller financing
- Real estate crowdfunding initiatives
Fix and flip undertakings can reap good profits for astute investors and experts predict this trend will continue during 2021.
Yet, it’s important to work with an experienced team of fix and flip professionals in all your endeavors.
A reputable and experienced real estate agent, title attorney, and lending partner will guide you every step of the way. The best tradespeople will ensure you get the most bang for your buck no matter the scale of your project.
It’s unwise to try and maximize profits by going it alone in uncertain times.
A Brighter Future for Business
If you’re in the fix & flip industry or have some cash to spare, you could benefit greatly from taking advantage of sound real estate investment opportunities at the dawn of 2021.
We’re almost through the darkest days of this latest challenge and when things look up again, wise investors could be sitting pretty in the wake of the pandemic.
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