In this teaching you’ll discover three surprising impacts of COVID-19 on house flipping that only those out there flipping houses every day could know. What’s more, financial experts didn’t predict them, and the mainstream media isn’t reporting them either.
Surprise #1: Inventory Reduction
Inventory, otherwise known as supply, is the available properties on the market for buyers to purchase. In certain areas, properties on the market with a realtor on the MLS have dropped by as much as 44%. Supply has dropped significantly for three reasons:
- People didn’t want to move in the middle of a pandemic.
- Once everyone was in lockdown, sellers assumed that people wouldn’t be looking to buy. This led them to take their property off the market to avoid it growing stale.
- People didn’t want strangers in their home for fear they may have the virus.
Less Inventory Means Less Competition
When you sell your newly renovated property on the open market, you’re competing with other available properties. Here’s an example of how this works:
As a house flipper, you’ve done your comps and know your house will sell for about $200,000. After a few months, your rehab is done, and you get it on the market. Unfortunately, there’s a similar property in the same condition listed at $185,000. That means a potential buyer looking for a property like you have will offer on the lower listing before yours. So, a reduction in supply means less competition and that has a major impact on house flipping. It makes it a lot easier to get full or even above asking price.
Now, you may think that the reduction in supply is a bad thing because it means you can’t buy any of the properties that are on the market, for example a listed REO or a foreclosure auction. I’m not paying attention to that for the moment because that’s not what I teach. My apprentices and I get our properties off market. We find deals before they ever get on the market and then we sell them on market. That means we don’t have an issue getting deals when there is reduced inventory. We love it because it makes it easier for us to sell our properties for maximum value.
Temporary Inventory Reduction
This is most likely a temporary reduction in supply and an influx of properties may go back on the market here shortly. That said, we must bear in mind that some of the people who we’re going to sell might not sell at all now. So much has happened in the last few months that 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 a lot of talk about a tsunami of foreclosures and deals hitting the market because people have lost their jobs and can’t pay their mortgage. That remains to be seen for a couple reasons:
- The foreclosure process takes a long time. Many people are still in their forbearance period and could be for quite awhile.It wouldn’t be until the latter part of 2020 that we see an influx of foreclosures and deals on the market.
- Many lenders might tack the forbearance amount on the back of the loan. As a result, it may get segmented out entirely and there might not be this flood of properties in the end.
Surprise #2: Increase in Demand
Having everyone at home under lockdown has increased the demand for people to buy a single-family home. People want to have a home; they don’t want to live in a condo or crowded apartment complex. And that demand is going beyond just apartment dwellers. It also applies to those who live in urban areas. Now that more people are working from home and companies are getting used to managing their teams remotely, there may be less of a need for employees to drive into the office. That means they can commute from a home that’s further away from the city center.
Demand for More Land
The desire for more land and space increases the demand for suburban and rural homes. People want room to breathe further out of the city and that has always been our bread and butter. I’ve always focused on areas where there are more single-family homes because those areas are better for house flippers.
Demand for Affordable Housing
The increase in demand is surprising because many predicted that with the increase in unemployment there would be a lot less buyers. Despite the current high job loss, there’s still a large part of the population that are employed and many of those people are thinking of buying a home.
So, with the decrease in supply and the increase in demand
working in concert together, it’s a lot easier to flip a house. I predict it
will continue to grow in that direction because we already have an affordable
housing crisis in America and the demand on affordability will only increase because
of the effects of the virus on the economy. Furthermore, as you move further
away from the city, the more likely you are to find affordability.
Surprise #3: Rising Values
If we have increased demand for single family homes but a reduction in inventory, what does that lead to? Rising values. It’s actually happening. Many experts are surprised at this impact of COVID-19. They’re seeing that even if supply increases dramatically, it won’t affect rising values, although they may not rise as quickly. There’s just that much demand for affordable housing. 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. Of course, it does depend on the area because every area is a little different.
This surprising impact for house flippers is especially encouraging. Often when people consider house flipping, they worry about losing value during the time from closing to putting the property back on the market . However, we aren’t seeing those kinds of losses and I’m aggressively funding deals for my apprentices. You might have noticed that the ibuyers and hard money lenders that got out of the market as soon as this virus hit are seeing the same thing and jumping back in. The market is ideal, so I encourage you to take advantage of it because we don’t know how long it’s going to be this good.
Certain aspects of how this pandemic would change real estate were previously discussed in my post, Coronavirus Impacts on Real Estate .