Investing in real estate has been a good option for many people over the past few years. One investment strategy that some people have been able to successfully follow is to fix and flip homes that are undervalued but need renovations to reach their full value and potential.
While house flipping has been a good idea in the past, the changes in the real estate market could impact your ability to turn an investment into a good return. Dennis Lynch of Rumson, New Jersey is a real estate analyst with Dennis and Marshall Lynch and has recently provided insight into what could make house flipping more difficult in the future.
Higher Prices and Interest Rates Reduce the Demand
Two of the challenges that Rumson NJ local Dennis Lynch has identified that can come with fixing and flipping a home are that both higher prices and increased interest rates are reducing demand for the ultimate buyer. Throughout 2021 and into 2022, real estate prices in New Jersey continued to spike. In many markets across the state and the rest of the country, these prices seem to have leveled off toward the end of the second quarter of 2022 and now are even trending down. There is concern that the bubble could continue to be deflated in the coming year, which will affect anyone looking to flip real estate.
Higher prices and increased interest rates have caused real estate prices to drop, making homes less affordable for many people. The higher rates are also making those other people who are looking to upgrade their homes reluctant to sell as they may prefer to be locked into the low rates, which they would like to receive in 2020 and 2021.
Still Low Inventory
Another challenge that people may have with trying to fix and flip homes today is that there is still low inventory. While sales velocity is falling and prices have dropped slightly from all-time highs, there is still historically low inventory. Further, homes that have lower values and need renovations are bound to have more competition as people may not be able to afford the higher-priced homes. This can make it more difficult to find a home to purchase and renovate. Even if you can find one, the higher borrowing costs and sales prices can eat into your profitability.
Fast Changes Add More Risk
While the real estate market is always dynamic and changing, it has moved faster in the last year than ever before. As interest rates have more than doubled in the past 12 months, it continues to have a large and fast impact on the overall market. As the typical home renovation can take months to complete, you could end up buying in one market and selling in another. If things go against you, it is possible to be left with a completed project that you are no longer able to sell.
Higher Costs and Challenges of Renovations
One challenge with a home renovation project that many people do not think about is that they may not be able to find people and resources to get the job done. While the economy does not feel very stable right now, there is still a low unemployment rate. This means that contractors can find it harder to get the skilled labor that is needed to complete a job. In a crowded market, you could have a hard time finding an affordable contractor to complete the work. Further, inflation and supply chain challenges are also keeping the cost of materials higher.
Dennis Lynch and other real estate investors throughout New Jersey are also beginning to notice a change in how banks and lenders will act, particularly with investment real estate. Getting a traditional mortgage or loan from a bank to renovate a home can be time consuming and challenging in today’s market. As the concern over the country’s economy and real estate market continues to increase, getting a loan from a bank can prove to be much harder. This could require you to take out a hard money loan, which can be more expensive or fund more of the project with cash.
Strategies to Avoid Risk
While there are clear risks that can come with renovating and flipping homes in the coming year, it can still be a profitable venture in some situations. Dennis Lynch and other real estate investors offer other tips that you could follow to achieve your goals for each specific investment.
Don’t Take on Too Much at Once
The most important tip that you can follow when trying to flip homes in this market is not to take on too much. Now is not the time for real estate investors to be greedy, but rather on getting on quality projects instead of focusing on quantity. You should try to have several active projects that you can manage and will be able to carry on for longer if the market slows further.
Do Your Research
You also should ensure that you are doing all of your research. As the market for real estate flipping can be less competitive, you should be able to take your time evaluating your options. This should include carefully assessing the market and doing a thorough site inspection to ensure you know the full cost of the project and potential sales price to ensure you can earn a profit that you are happy with.
As discussed, there are various headwinds facing all forms of housing investments, including home flipping. When you are looking for more insight into real estate investments and analysis, Dennis Lynch and Marshall Lynch can be great resources to use. Dennis Lynch has dedicated his career in Rumson NJ to purchasing, renovating, and selling property, and Marshall Lynch, his son, is following in his footsteps. Their experience and intuition can help anyone identify a good investment for home flipping or to serve another strategy.