3 Surprising COVID-19 Impacts on Flipping Houses

The coronavirus has created some dramatic surprises in just about every aspect of our lives, including in the world of flipping houses. In this video, you'll discover 3 surprising COVID-19 impacts on flipping houses. While certain aspects of how this pandemic would change real estate were previously discussed in this training, CoronaVirus Impacts on Real Estate Investing, the following shares with you 3 surprises that only those in the trenches, flipping houses every day, could discover. And they are particularly fascinating because financial experts didn't predict them and the mainstream media isn't reporting them either. Enjoy!


 

Surprise Impact #1: Inventory Reduction

 
Inventory is the available properties on the market for buyers to purchase, otherwise known as supply. In some areas, normal sellers that had their property on the market with a realtor on the MLS, have dropped by as much as 44%. Why is that? Supply has dropped dramatically for several reasons:

  • Once lockdowns occurred, sellers assumed that buyers wouldn’t be looking at houses, so they took their property off the market to avoid it sitting there and growing stale.
  • They don't want to move in the middle of a pandemic.
  • Others didn't want to do showings and have people traipsing through their home when they may have the virus.

A reduction in supply has a significant impact on house flipping because it means less competition. It makes it much easier to get full or even above asking price.

Less Competition for House Flippers

When you sell your newly renovated property on the open market, you’re competing with other available properties. For example, you do all your homework and comps and you know your house will sell for about $200,000. After two to three months, with your rehab done, you get it on the market. However, there's an identical property in the same condition and they're listed at $185,000. That means buyers looking for a property like you have are going to offer on the lower listing before yours. That's just the way it works. So, it's a very good thing when inventory or supply is reduced in the world of house flipping.

Now, you may argue that the reduction in supply is a negative thing because it means that you can't buy any of the properties that are on the market, for example a listed REO or a foreclosure auction. Well, I'm ignoring that for the moment because that's not what I teach and it’s not what my apprentices and I do. We get our properties off market. We find deals before they ever get on the market and then we sell them on market. Therefore, we don't have an issue with reduction in supply as it relates to getting deals. We love it because it makes it easier for us to sell our properties for maximum value.

Is this Inventory Reduction Temporary?

This inventory reduction is most likely temporary. There might be an influx of properties that go back on the market here shortly. However, we also must consider that some of the people that we're going to sell might not sell at all. Now that they've been in lockdown in their house for the last two months, they fixed everything. Their house is better than ever and they may reconsider moving! So, we don't know how much of an influx will come from the people that took it off the market.

I’ve been hearing people say that there will be a tsunami of foreclosures and deals hitting the market because people have lost their jobs and can’t pay their mortgage. That may or may not happen. We must consider the fact that the foreclosure process takes a long time. Many people are still in their forbearance period, and they might be in that forbearance period for a while. So, if there's going to be an influx of foreclosures and deals on the market, it wouldn't be until the latter part of 2020 at the earliest. Or it might get segmented out entirely. Also, many lenders might tack the forbearance amount on the back of the loan. As a result, there might not be this flood of properties in the end.
 

Surprise Impact #2: Increase in House Demand

 
Now, if I had a crystal ball, I should've seen this coming. Having everyone at home under lockdown has increased the demand for people to buy a single-family home. Home being the key word here. People want to have a home; they don’t want to be in a crowded apartment building or in a condo complex. Not only is there a huge demand for people to now have their own home, but it goes a step further.

That demand is going beyond just apartment dwellers, it's also the people that live in urban areas. Now that our society is shifting to more people working from home, and companies get used to managing their teams remotely, it’s possible that there will be less of a requirement for someone to drive into to the office. As a result, they might be able to commute from a home that's further away from the city center.

Demand for More Land

This means more demand for suburban and rural homes where people have more land and space to accommodate working from home. This was something I learned 20 years ago when I first got into real estate. Often when I was trying to sell a house to a rent to own tenant buyer, they always wanted a house with a little more size and more room to breathe. They didn't want to be right on top of their neighbors. Unfortunately, in most of the new subdivisions that were being built, the houses were right next to each other with small yards, and it was exactly what the customer didn't want.

Right now, that shift is stronger than ever. People want a little more house and they want it to be a little further out in the country. That has always been our bread and butter. We've always focused on the areas where there's more single-family homes, and that is so much better for house flippers. Not to say that there won’t be demand for single family homes that are somewhat close to the city.

Demand for Affordable Housing

What's so surprising about the increase in demand is that many predicted with the increase in unemployment there would be a lot less buyers. Even with the high unemployment right now, there’s still a large part of the population that have a job and many of those people are thinking of buying a home. So, with these two things in concert together, less properties for sale and the increase in demand, it's easier to flip a house than it was before.

I would argue, it's going to continue to grow in that direction because we have an affordable housing crisis in America. There's even more of a demand on affordability because of the effects of the virus on the economy and you are more likely to find affordability as you move further away from the downtown area of a city.
 

Surprise Impact #3: Rising Values

 
If we have increased demand for single family homes but a reduction in supply, what does that lead to? Rising values. It's actually happening. There are other aspects of real estate, but when it comes to the fundamentals of what controls single family home real estate values, it’s about supply and demand. Many experts looking at this are surprised at this impact of COVID-19. They're seeing that even if supply increases dramatically, it won't change the fact that values will continue to rise, even if they don't rise as quickly. There’s just that much demand for affordable housing. Of course, it does depend on the area because every area is a little different.

This surprising COVID-19 impact for house flippers is very encouraging. Many people when considering house flipping worry about losing value from closing, a few months of renos and then selling. However, we aren’t seeing that at all. I'm really aggressive right now with funding deals for my apprentices. You might have noticed that all the ibuyers and the large national hard money lenders that jumped out of the market as soon as this virus hit are jumping back in right now. They're seeing the same thing. Everybody is making a lot of money right now. The market is ripe for the picking, so I encourage you to dive in because we don't know how long it's going to be this good.

 

Click to rate this post!

[Total: Average: ]

Comments

  1. Doug Coffey says

    Phil, Some info to support your “3 Surprising COVID 19 …..” video. As a hard money lender, rental owner and picky flipper in Florida, in my area we are experiencing similar activities and market conditions near to your outline. It is also indicated Florida is gaining a greater out of state population increase from many fleeing the higher and dense populated regions. The influence of the increase population contributes to an additional group seeking homes.
    Thank you again for your videos, always thought stimulating and provoking. Many times I see your videos as a confirmation for something I am doing or consider doing. ABC……”Always Be Closing”.

  2. Hanako Nakamura says

    Hello! How are you? I am reading your book “how to be a real estate investor” . I am learning a lot. Thank you. I live in New York in Westchester area. Do you think it is good idea to get a license and work on real estate agency and learn everything in real estate business and become real estate investor for house flipping? I would like to hear your opinion about it.

  3. COREI Group says

    This video is primarily for lower priced affordable single family homes in middle America. The margins for flipping are getting tighter. It’s risky to buy in this uncertainty. Collecting rents as a Plan B is out and lending is restricted. I don’t see this as a “great time” to flip houses. Maybe later in the cycle once the banks auction them off at deep discounts, but not anywhere near current values.

    • Phil Pustejovsky says

      Your comment is void of any hard facts on why you think its “risky” and it sounds more like a general statement of opinion than a nitty-gritty determination based on real world facts. In other words, “Noise” rather than “Signal”.

  4. Michael Vinson says

    Hey Phil, answer this question for me. I’m in the Illinois market, with the new law on wholesaling, what do you think would be the best strategy for doing off market deals?

    • Phil Pustejovsky says

      If you are in Illinois, go get licensed as a real estate agent and hang your license with an investor friendly Broker. Other than that, it’s the same methodology as anywhere else.

  5. E J Jakso says

    Phil,
    Thanks for confirming everything I’ve been observing and, like you, came to the same conclusions. I’m more into purchasing properties to rent for income or to sell for rent to own situations and have always purchased properties withing a 30 mile radius of a downtown area generally in working class neighborhoods. I see a big opportunity coming.

  6. Gerry VandePol says

    Yes, major fluctuations.. listings way down, vacant luxury home. Sales down.. but still peeking in pockets. Seen a lot of deals not close.I see sub 2 and lease option sandwiches in the future…also, what’s your take on the impending devaluation of currency, banks tightening their belts,soon to be spike in interest rates,housing prices tanking, long term unemployment, social decay, and our government over reach , agenda 21 which is carved in stone, this ridiculous overblown virus…. you know there’s more to it… our slave masters are showing their hands…. have at it..

    • Phil Pustejovsky says

      We’re seeing most of our deals close (more than usual). I guess all the participants in the deals are no longer trying to act like the smartest person in the room by killing deals, but instead, trying to keep them glued together. As to all those other speculations; I leave those topics to others who love to try to guess what’s going to happen in the long term future. Meanwhile, I’ll keep collecting profits in the here and now.

  7. Sam Ramahi says

    I live in Westlake Ohio And I’m looking to get in the area do you recommend somebody directly work with

  8. Moussa KRIZOU says

    Thanks Phil, I really enjoyed your video. I’m willing to buy my own home but I’m still confused about the market. I have 70K cash and I didn’t find the appropriate house in Chicago area. How I can do, and what are all the steps to close the deal?
    Thanks

  9. LISA A GUERRERO says

    Glad to hear that. You did your homework! I have a home I’m remodeling. And that’s hard .. when I ever get it done, I may live in it, sell as is or rent out. It’s a hard decision too. in a time like covid19.. I’m doing with what I have and saving for the best passive income- home business..then I’ll be out of here!!.. lol

  10. Assanta Gathing says

    Thank you for that helpful information i’ll definitely keep following to stay informed with the changes that are happening. Stay well stay safe🙋🏾‍♀️

  11. Mike Hughey says

    You say it is great right now? I think that is a broad Picture. It depends where and what city and certain pockets of the area. U dont think you can say that for everywhere across the nation nd it would be good if you could show some actual stats that prove what your saying and zero in certain locations. I live in the San Fransisco Bay area and certain pockets are hot and certain ones are dead within a few miles of each other. I have 3 flips going on right now all started before the Corona Virus and I had to finish them and move forward bc they were already started and was already deeply invested.

    Looks like I am aboiut 30 days away from marketing and hope things Get better and stay strong.

    • Phil Pustejovsky says

      We’ve seen this pattern across America, from New York City to San Francisco. As I pointed out in the video, there are always exceptions and, of course, real estate is very localized so it is possible that some pockets are just lousy right now for house flipping; but if they are lousy now, they were even worse a few months ago. COVID-19 has made it easier to sell a house that you have fully renovated everywhere; but obviously some areas are so terrible that even with the wind at your back, it’s still tough going.

Speak Your Mind

*