Is it a Good Time to Buy for Investors?
This year much has changed in the real estate investment world, but where does that leave investors, and is it still a good time to purchase investment property? The answer really depends on the goals of the investor. Let’s look at a few different possibilities.
Buy and hold investors. Like the majority of my investor clients, many investors purchase with the notion that down the road the property will have gained equity, and at some point in time, a sale will net a nice profit. Most of these investors look for properties that are in good to excellent condition, and need very little work (such as paint and new appliances or possibly flooring), but they tend to stay away from major fixer properties. The goal is to purchase for a good price in a home that will command a good rent.
Most of these types of buyers have stepped back this year and are no longer looking for properties to add to their portfolios. This is because of the increase in prices due to increased demand and very low inventory. These types of buyers are not interested in getting into bidding wars and definitely do not want to pay prices that are above comparable market sale prices – like many purchasers today who are buying homes for their primary residences. For these folks the decision is not emotional, so they have or are no longer active in this market, at least until inventory levels rise and demand cools off.
Flippers. Flippers are still looking in today’s market, but it is harder to find the “gems” out there. Flippers come in many shapes and sizes…some do minor – what I call “bandaid” – work, and then sell. They are good at doing a minimal amount of work on the property to make it feel like a remodel. But if you look deeper you will see that they don’t tackle a lot of the things that the “heavy” flippers (my term) don’t. Heavy flippers don’t just slap on a coat of paint and throw in new appliances, they replace lighting and fixtures, surfaces and bathrooms, and repair other issues that need addressing (like installing new water heaters and HVAC units, etc.) It is really very property-specific, and obviously some properties need more work than others.
In today’s market it has become more difficult for the heavy flippers, as they usually need to purchase homes for low prices in order to make a decent profit. But I have definitely seen more and more bandaid flippers – some are willing to pay contract price, and then go in and do a minimal amount of work before putting the property back on the market. Many of these flippers likely make $10-15 in profits and are happy with that. So if you are a flipper or are thinking about becoming one, whether the market is ripe for doing so will depend on the specific area market, on your competition, and on what you plan to do to rehabilitate the property.
For many investors it is a difficult time to acquire property that is priced well without getting into a bidding war. And since paying over comparable sales is usually not a good business goal for an investment, it has become a difficult time for many buy and hold investors. Similarly, flippers are faced with challenges in finding properties they can buy for prices that are low enough for them to make a profit on the flip side.
It is important to keep in mind that every real estate market can be very different from the next, even neighboring complexes or cities may be different in terms of value and comparable sales. So before you venture out there to buy investment property, make sure to do your homework and work with an experienced local area agent. Have no fear – when inventory increases once again there will be more opportunities for investors.
