2020 was the year that brought on massive change to almost every area of our lives and the real estate market is NO exception. If you’ve been thinking about taking on a fix-and-flip investment, it’s important to look at the current state of the market before getting started.
We’ve gathered three things house flippers need to know in 2021 before taking on these projects;
Home Flipping Profits are at a 20-Year High
If you’ve been wondering whether the time is right for a fix-and-flip project, data suggests now may be the best time in a while! According to ATTOM Data Solutions, house-flipping profits have soared to their highest level in 20 years. In the third quarter of 2020, the average gross profit on a flip was $73,766, up from $61,800 in the third quarter of 2019.
That said, there is one big caveat to those figures: The profit margins listed do not account for the cost of any renovations or other expenses required to put the home on the market. Rather, this data simply focuses on the difference between an investor’s purchase price and the eventual sale price for the property. Keeping that in mind, budgeting is extremely important here.
You Will Have To Offer More Than You’d Expect
When budgeting, one of the first things to consider is the home’s purchase price. Traditionally, investors will try to increase their profit margins by making an offer well below the list price. However, this maneuver may not be possible in the current market. Not only are we in a seller’s market, but we’re also experiencing a nationwide inventory shortage.
When inventory is low, home prices tend to increase rapidly because there’s so much competition for every available listing. You may find yourself having to offer more than you normally would for a property in order to remain competitive in the current market.
Your Sale Price Will Likely Be Higher Too
That said, it’s not all bad news for investors. Once you do manage to secure a property and get it ready for sale, you’ll likely be able to sell it fast and for a profit. NAR’s data suggests “Median home price rose to $315,900 in the fourth quarter of 2020, up 14.9% from the same time in 2019”.
Flipping homes isn’t science. However, it is rooted in math. Before you make any major moves, have a budget in mind, and get a firm idea of the state of the local real estate market. If you’re looking to get funded for your next fix and flip project contact First Equity Funding today! (732) 359-7800.