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 rennovations 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.