House flipping continues to be a go-to form of real estate investment. However, the housing market looks very different today than it has in the past few years. While you can still earn a good income through house flipping in 2023, there are a few important things to keep in mind. Read our top considerations for house flipping in 2023 before you start hunting for your next renovation and resale project.
Why House Flipping in 2023 is Riskier
Higher Inventory, Fewer Buyers
This time last year, buyers were snapping up houses left and right. Since then, however, historically high interest rates and home prices have caused the market to cool significantly. Sellers are finding it is taking much longer to find a buyer at asking price, which means two things: inventory is creeping up, and listing prices are going down.
This could be a potential boon for house flippers looking to buy up properties. But remember: you ultimately have to find someone to purchase that property from you for more than you paid for it. If you were the only buyer of that property after a month on the market, consider how long you are willing to wait for someone to buy it from you once it is relisted. Time is money in real estate, and each day the home stays on the market will eat into your profit margins.
Materials for House Flipping Cost More in 2023
The impact of COVID-19 on supply chains has been long-lasting. Paired with general inflation, home renovations are often double what they would have cost pre-pandemic. Furthermore, even simple upgrades can take significantly longer due to inventory shortages.
Waiting two months for the type of quartz you need for a countertop is simply not an option when flipping a house; nor is paying twice the amount. In order to be profitable during renovations in 2023, you will need to be very careful about which upgrades you pursue. Triple check what is available from your suppliers and stick firmly to your budget.
People Are Moving Back to the City
The pandemic also saw an appreciable migration out of once booming cities to more rural areas. This was largely due to the fact that the workforce was homebound. As a result, the housing market saw an uptick in unexpected areas. Savvy real estate investors noticed the trend early on and began buying properties in those regions before prices soared too high.
This year, however, the trend appears to be reversing. With much of the workforce returning to the office (at least part time), individuals are making their way back to the city. It will be important for flippers to keep an eye on this pattern in order to stay ahead of the market and buy the most in-demand properties.
Fix and Flip Loans May Be Harder to Come By
The risk of flipping houses extends to lenders, who may not be as keen to loan in the current market. Unless you are able to meet solid credit and down payment requirements, you may find your options for cash limited.
So, Should You Flip Houses in 2023?
With the proper precautions, house flipping can still be a lucrative business in 2023. However, with so many potential sources of lost income, it may be wise to wait out the market for at least another few months. Many previous home flippers are switching from “fix and flip” to “fix and hold.”
Fix and hold is similar to fix and flip in that you will be buying a property in need of renovation. Instead of selling the property after repairs, however, you rent it out. This strategy makes a lot of sense in the current market, when many would-be homeowners are reverting to renting (thanks, in part, to unmanageable interest rates). Although you won’t recoup your investment as quickly as you would by reselling, you will have a long-term source of passive income. The beauty of rental properties is that, eventually, they generate wealth without you having to lift a finger (or sledgehammer).
Real Estate Loans in Colorado
Pinetree Financial supports all types of real estate investment ventures in the state of Colorado. Whether it’s a fix and flip opportunity or a commercial property, we want to hear about your project and how we can help. Call or go online today to get started.