The real estate industry is profitable and made people wealthy for centuries. There are many ways to make money in real estate. These include renting properties, investing in REITs (real estate investment trusts), commercial real estate, and selling properties − including house flipping.
Selling properties includes flipping, which is buying real estate and selling it for a high price in a short time (less than a year). Flippers often find debilitated properties, fix them quickly, and sell them for profit. However, house flipping could be on the decline, and it may not be the cash cow it was in yesteryears.
Read further to find out more.
Real Estate Prices
After the 2008 housing crisis, interest rates were very low − which the Fed did to stimulate the economy. The housing market also bottomed out, which meant it could only go up. A combination of the two factors led to fast-rising home prices that one acquired at a low cost.
In 2022, the real estate market is topsy turvy, and property prices are higher than ever across the board. The cost of building materials is also up due to supply chain issues caused by the pandemic. Labor costs are also higher due to the lack of workers. These factors mean housing prices are too high, even for run-down houses.
Therefore, if you are a real estate flipper, you must buy houses at high prices and then sell them at even higher prices. Use this home affordability calculator to see which places are affordable for you.
You probably find that much fewer affordable houses compared to a few years ago. The result is that profit margins are meager, which is discouraging for real estate flippers.
According to many reports, supply and labor shortages project to continue for the foreseeable future. This means no reprieve for real estate flippers. The same goes for price margins which forecast to continue dipping, should home prices continue rising. If you want to sell your home for a profit, now is not the best time.
Competition
Competition in the real estate industry is very high right now. Real estate flippers saturate the market and also in real estate markets with the highest profit margins, such as Naples, Florida, and Kirkland, Washington.
It is challenging to find a property that is worth flipping. When you finally find a property, chances are you bid against serious competition. According to many industry experts, if you ever considered starting a real estate business, now is not the time to do so.
In addition to individual investors and real estate flippers, you also must compete with regular homeowners for the property. Now, institutional investors join the market and flex their financial muscles, pushing smaller investors out of the market.
Large real estate investors include REITs, colossal hedge funds, and real estate investment companies which became more involved in the single-family home market.
Due to the high price of homes, many owners are tentative about selling their houses, meaning fewer listings share among a rising number of buyers in the market.
The competition in the real estate market is at its highest, leading to large investors buying homes and renting them out instead of selling them.
Is House Flipping Still a Viable Option?
Given the state of real estate markets all over the country, house flipping is not a viable option for many, especially traditional flippers. If you are a seasoned real estate flipper, you know some tricks of the trade that help you be more successful.
Unless you are a large financial institution with access to significant capital, it is best to stay out of the real estate market, especially house flipping. There are other ways to make money in real estate to consider.
