Have our Fix-n-Flippers Helped or Hurt Our Market?
Here in Arizona, we were one of the 5 hardest hit states in the union when it comes to the pounding we took in our real estate market over the last several years. We found ourselves in an absolute mess because our prices had dropped to ridiculously low numbers! Every time we turned around, each time the clock ticked, an overwhelming number of new investors came in and bought up (and are continuing to do so at unbelievable rates) our housing gluttony as people lost/lose their homes to foreclosures or distressed short sales. One hedge fund alone that I know of bought 532 homes off of the trustee auction block last month - and that doesn't count all the short sales, REO (foreclosures) and traditional sales that they bought thru the MLS system!
What do these hedge funds, or even the huge number of individual investors (no way to guess even how many 10's of thousands of investors there are), do with all of the homes and properties that they are buying up by the thousands? Most are doing what is called a Fix and Flip.
What is a Fix-n-Flip? It's when you purchase a home, remodel it and then either turn around and sell it for a profit or rent it out (HOLD it) until the market increases in value and then sell it.
As I was looking at statisitics in my own city of Mesa (Phoenix suburb) yesterday, I found that prices have increased as much as 49% since this time last year! No... that doesn't mean accross the board 49% - it means that those who purchased these dumpy homes and have fixed and flipped them on the open market have increased our values (mostly very low end homes) by as much as 49% over the last year. It didn't happen all at once. It happened fairly rapidly, but each investor was not making a 49% return on their investment. Each one, in each interval of time, purchased the home, fixed it up, and then sold it for a reasonable margin and that in turn increased the value for the next one and the next one and the next one.
It's a little hard for us realtors who get new investors (even if they are paying cash with a quick close) to help them realize how the market is ever changing. They want to make huge margins, instead of the sure and steady small margins over time. They want us to pull a rabbit out of our hat and find that 1 deal or even 100 deals that is going to instantly make them rich. All I can say to that is, "Wouldn't we all?" It's not an easy business for us realtors or for those investors.
Unless they are doing it on a regular basis and seeing how the market is ebbing and flowing each week and each month, it's really hard to understand what choices to make when. It is so important that even the best investors find a well qualified realtor who understands how the market is changing across the entire valley - not just their neighborhoods!
Since I have built a team of agents across the valley, it is much easier for me to see and feel (as sometimes it's more of a feeling than a known fact) how or what the next shift will be and what the market will be doing next. For example, a year ago, we couldn't find a dozen available homes in Maricopa (small suburb of Phoenix) because so many investors (mostly Canadian) came in and bought them all up.
Well today, there are 529 active listings in Maricopa on the MLS (multiple listing service that realtors use). Of those 529 active listings, 353 of them are traditional sales (not short sales nor foreclosures)! What a huge turn-a-round in one year. If I were to individually click on those 353 listings, I would find a large portion of them have been purchased by investors and have been fixed and are being flipped for a small profit. With that number of homes, it is a given that the profit margins are much smaller than they were a year ago, because of the competition.
I am always trying to tell my fix-n-flipper clients to do something more to the property to make it stand out. As my team and I show home after home after home, these so-called self-made "interior designers" think that they need to make everything monochromatic - saying things like "It's neutral so it's easier to decorate around". Phooey - it's boring. Buyers too see this house after house after house.
It's usually the homes where the investor/flipper has added some color, some textures, some interesting features, or even fresh flowers that grabs attention. I'm constantly begging them to let my team give them a few hints. It really doesn't cost a lot of money to add some key highlights. In fact, for those of my investors who have followed our advice, we have usually been able to sell their homes faster and for as much as 15% over market value. Why wouldn't they use our help to either increase their chances of selling faster or for more money?
Which brings me to a whole other topic - why not hire a team of realtors like mine who can flood the internet and neighborhoods with information and can quickly get you up to 15% over market value? Silly not to!
I remember saying to myself 3-4 years ago, "Do I hate or love these fix-n-flip investors?" Take a look at some of the before and after photos and you tell me what you think.
True Story.... I had an investor ask me yesterday to take him to see this home:
Now you tell me...
Have our Fix-n-Flippers Helped or Hurt Our Market?
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