Let’s talk about the realities of flipping houses in today’s market. Some flippers are seeing their finished rehabs sit on the market, and we all know that unexpected holding costs can ruin your budget. The reality we need to face is the days of getting $50,000 over asking are gone and it is making some real estate investors nervous.
That’s why we asked Tyler Jensen to share what he’s seeing and how he’s adjusting his massive house-flipping business to stay ahead of the changes. Tyler is based in Utah but flips houses all over the United States. He is considered one of the best flippers in the country and his superpower is flipping houses in record time while managing quality, time, and budget impeccably. Yes, inflation has snuck up on us, starting with gas prices but ultimately ending in higher interest rates which hugely impact the real estate market. We knew this was coming, and now it is time to adjust. So what can you do?
Accept the New Reality and Get Back to Basics
First, accept the reality that you are no longer going to get $50,000 over asking price and begin to comp your properties accordingly. Inventory has gone way up. We went from low inventory and high demand to high inventory and low demand. With interest rates going up buyers have become afraid and many property owners are rushing to sell before the change in the market (which has already happened).
You have to get back to the basics. What does that mean?
It wasn’t that long ago, pre-Covid, that we had to work harder to sell houses. Now we have to go back to remembering how to put in the work to sell. Before we became spoiled with properties flying off the market in a week, it was common for a house to be on the market 30 days before selling. Now we are seeing houses sit on the market for an average of 45 days. We might be looking at a six-month hold time, and so when you crunch your numbers you have to account for extended holding costs.
Find the Balance Between Clearing Inventory and Asking Fair Value for Your Property
Buyers are offering significantly less than the asking price. Making sure your property is priced right and knowing you are offering great value will allow you to enter into the current buyer’s market with confidence.
If you know the value of your property and are willing to wait a little longer for a buyer who will not lowball you, you won’t fall into the trap of settling for a low offer because you are afraid it’s the best you are going to get. If you consistently do that, it will create a self-fulfilling prophecy in the marketplace. If enough sellers cave into fear and sell for less, the expectation of asking price is now set with comps that lower the value of the entire market. It’s all about balance. Clearly, you don’t want to hang onto your property for 3 months at a high asking price. However, knowing how to adjust without over-capitulating out of fear is key.
What if you were overconfident and increased your inventory with some bad buys before the market shift?
Maybe you made some overconfident buys and now are stuck with houses that may or may not make money. In order to make it through this uncomfortable ‘gap,’ you may have to reset your inventory to play the game long-term. Our advice is to get rid of those properties in smart and creative ways one move at a time. Figure out how to fix the mistakes that were made, liquidate your bad assets and fill your pipeline again with better properties and better deals. You can survive the gap with better inventory you can make money on.
The key is figuring out how to offload the things that are weighing you down financially, mentally, etc. It’s understanding when to cut your losses so you can move forward, that will help you make a calculated decision to reduce the price of your property rather than keep it on the market another month.
How do you sell those houses?
Imagine it’s the clearance rack, and you need to flush out the old to make room for new spring inventory. You have to adapt your mindset. You can get through these hard times and you may take a loss, but by getting creative you can solve one problem at a time. Pick your biggest problem and the one that gets you closest to the dollar. If you have houses sitting on the market you can slash prices, but what is key is getting people out to see the property and finding creative ways to add value beyond decreasing your asking price.
There are multiple ways you can do this.
- Have open houses several times a week,
- Offer realtor tours.
- Look at long-term financing. Can you take some of the properties back and turn them into rentals and sell when the market is better?
- Alternative funding. There are grants available through the government in some areas that offer financial incentives for first time homeowners.
- Figure out how to give greater value. Tyler Jensen offered to pay a buyer’s mortgage for six months and had three offers in a week. That was a $15,000 dollar rent allowance. It was more valuable to the buyer than just taking a $15,000 price cut which would average out to $6 less on a monthly mortgage payment. The buyer now has six months mortgage free and you wind up with the same price cut you would have taken anyway. This is a creative value to add significant value to your buyers.
- Buy down rates. You can cut deals with private lenders and buy lower rates for the first year with an increase in the second and third years. You can offer these pre-approved rates to your buyers.
In today’s market, you have to become a marketer and salesperson. Sometimes it will require testing different methods to see what works. This is not the time to lone wolf it. Get realtors and other salespeople out there to help you move your properties. Good customer service is becoming hugely important again. Make connections and utilize your network because the best of the best are going to rise to the top in this market while everyone else falls away.
We understand that it can be hard to be creative when you are in the weeds and can’t find your true north. That’s why having mentorship, or a group to bounce ideas off can help you take the action needed to move you out of the mess. Find your tribe, you may need people to remind you that you can do this, and that you are valuable. Ultimately this shift in the market is a part of the ebbs and flows of real estate.
Having a positive mindset, and surrounding yourself with a creative community will help you adapt, pivot, and ultimately influence how you successfully navigate this transitioning market.