I think I might have scooped the LA Times! Yesterday, they published their first story on the flipping wave in Northeast LA. In January (3 months and a millenia ago in real estate time), I blogged about what I was experiencing on the ground and tips to successfully flip. The only update to add is with spring and summer approaching, I’ll bet a nickle that demand will only get more ravenous among cash-wielding developers.
The most frequent question I get, aside from, “when are you guys having a baby?,” is “how’s the market?” If it isn’t apparent, I can tell you that it’s hot and spicy…in the flipping arena. While foreclosures and short sales still make up a big chunk and standard sales, with good looks at a great price, make up another chunk, flipped properties are the secret lovechild making a huge dent in overall sales.
I can definitely say that I haven’t seen this level of activity in some time. In the past 30 days, it seems that 1 out of every 5 new listings are flips. For the purpose of this post, I’m defining a flip as buying, renovating and reselling within 12 months. That 12-month marker is pretty generous considering that most of what I’m seeing is being resold at the 3-6 month mark.
So what’s driving all this flipping activity? For starters, cash is king and some of these pre-flipped properties are dirt cheap. By dirt cheap, I mean 200k or less for character homes in “desirable” locations. By “desirable” locations I mean areas that are hot with the young and trendy with moderate funds (i.e. Silver Lake, Echo Park, Highland Park, Mt. Washington).
Speaking of character homes, everything I’ve seen getting successfully flipped are homes from the 1920-1940s, with a price tag of $299k or less, but in neighborhoods with supported comparables in the $400-500k range. Why is this important? Because no matter what anyone tells you, this is the hottest price point. There are just way more young couples, newlyweds, first time buyers and investors looking to buy at this price than there are Jennifer Aniston’s to swoop up those $20 million dollar mansions.
Character homes are critical because these homes have the good fortune of having a ton of built in value and desirability. I can’t stress enough how important it is to have original wood flooring, vintage windows, moldings, woodwork and built-ins. These features trump that stainless steal fridge you picked up at Costco any day.
Finally, aside from relatively easy loans for those with the funds and credit and the FHA continuing to fund flips, the reality is that there’s still no money like the money you can make flipping. Sure, seeing profits of $250k in 6 months might be so 2005, but are you really going to turn up your nose to $150k in 6-12 months in 2012? Yeah, I didn’t think so.
So here are my tips for a successful flip in 2012:
- Buy a home with character under $299k
- Buy said home in Echo Park, Silver Lake, Highland Park, Eagle Rock or Glendale
- Heartily compensate reliable, competent members of your flipping team
- Don’t be cheap. This isn’t 2005 where a paint job and new appliances get you a $200k profit. See what ModOp is doing. Rinse, repeat
- Depending on what you spend, don’t price it higher than the $499k magic number
- Don’t get greedy. If you went over budget, that’s your fault. Don’t make the more devastating mistake of pricing it too high when you sell–it won’t
If you have any questions of flipping or real estate in general, feel free to ask. Happy flipping!