Should I be Flipping Houses in this Market?

What is the flpping houses market like?

If you are a Doomsday Prepper and have been living in a shelter since the Mayan Apocalypse, you may not realize that the above-ground real estate market is back.  The rest of us have once again been inundated with news articles and TV shows about flipping houses.  From HGTV to CNN, the airwaves are filled with love for rehabbers.  But, how do you know whether to enter into the fray or return to your underground home for another few months?

There are 3 main questions to ask when determining whether your specific market is right for investing in real estate.  These questions revolve around consumer confidence, absorption rate and days on market.

Consumer Confidence

This past May, sales of new homes rose to the highest level since July 2008, according to Commerce Department. Increased consumer confidence has driven this growth as has a reduction in foreclosure activity.  According to Jed Kolko, chief economist for the real estate website Trulia, “most of the foreclosure crisis is behind us, so there are far fewer foreclosed homes now on the market waiting to be sold.”  Ask your agent about increased market activity to see whether consumer confidence is up in your area.

Absorption Rate

The definition of absorption rate according to Investopedia is:

“The rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the total number of available homes by the average number of sales per month. The figure shows how many months it will take to exhaust the supply of homes on the market. A high absorption rate may indicate that the supply of available homes will shrink rapidly, increasing the odds that a homeowner will sell a piece of property in a shorter period of time.”

Days on Market (DOM)

Days on Market is an industry statistic that simple tracks how long it takes an average property to sell in a given area.  DOM and absorption rate are often strongly correlated.  In other words, as absorption rate decreases, DOM often does as well.  This is simply because with less homes to choose from, buyers feel more pressure to act quickly when they find what they want.  When flipping houses, this is great as it means your carrying costs will be lower.

Good Markets

Most markets around the nation are surprisingly good right now. For example, the median sales price for homes in Philadelphia from December, 2012 through January, 2013 was $140,000 which represents a 16.7 percent increase from the same time the previous year.  Here are some other strong real estate markets for flipping homes according to the main-stream media…

Yahoo Real Estate News

Washington Post

Use Your Team

Don’t hesitate to ask your Realtor, “Should I be flipping houses right now?”  It’s her job to stay apprised of market conditions and she should have Absorption and DOM data readily available.  Remember, real estate is hyper-local.  Make sure you know the numbers not just for your town, but for the specific neighborhood you are looking to invest in.

Additionally, make sure not to over improve a house. The market in the area may be good but you want to make sure your house is sellable too. Ask your Realtor for comps of the neighborhood. Sometimes even if you renovate a house well, in the wrong neighborhood, the wrong area, you are not going to get the ROI you were hoping for.

Markets are up

The key is to look at what you can control. “There are fewer real estate investors now, compared to during the boom. But this time, they have really done their homework,” says Andy Heller, author of “Buy Low, Rent Smart, Sell High: Real Estate Investing for the Long Run.” You cannot control the market, but you can educate yourself on market trends and put a system in place that will guarantee profitable results.

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Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.

Erik Hitzelberger – who has written 194 posts on Part Time REI.

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