My company works with fix-and-flip investors every day, and one of the most common challenges we hear from borrowers is the difficulty in finding viable investment properties to purchase. As Reuters reported in early 2018, housing inventory across the U.S. fell for 31 straight months through the close of 2017. And recent forecasts suggest homebuyers will continue to face a tight housing supply throughout the rest of 2018.
So, what’s an investor to do? How can you find investment properties in a housing market with limited inventory — where you’re competing not only with buyers looking for a primary residence, but also with other real estate investors? A statistic in that same Reuters report offers a clue to one possible strategy: In December 2017, permits approved for new construction of single-family homes reached their highest level in a decade.
Explore the new-construction alternative.
When looking for a traditional fix-and-flip property — say, a single-family home in a typical suburban setting — you need the economics to work in your favor. The property should have enough issues that its owner is willing to sell it below market value, but not have so many problems that renovating it will cost you a fortune. Plus, if it’s a really great deal, you’ll probably face competition from other investors, meaning you could potentially yield less profit.
Some investors have started looking instead at dilapidated properties, the homes with the big problems. This type of investor will then demo the home in its entirety, build a new house in its place and sell it. Sometimes an investor will even buy a vacant lot in a residential neighborhood to construct a new house to flip.
Could this new-construction approach to flipping work for you? Consider a few of the benefits…