It’s still a Buyer’s Market- Still thinking of Flipping???

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It’s been a while, but housing inventory is actually down right now, way down. In fact, according to reporting by the New York Times, citing the National Association of Realtors®, the number of homes currently for sale is the lowest it’s been since 1999. Hard to believe isn’t it, especially with all of the foreclosures out there and the bad rap of our current banking establishments.
A surge in demand for single-family homes – fueled by rock-bottom interest rates on 30-year mortgages – has all but cleared inventories in many markets, and caused median selling price increase by over 7 percent. Rents, meanwhile, have increased by about 3.5 percent over the same period, which should make renting relatively more attractive than buying.
Real Estate Data on a national scale means nothing to us here in central Alabama. We, like so many other markets have a different set of factors that cause our market to maintain its own life, if you will. However, the folks at Trulia.com came out recently with their annual Rent vs. Buy Study, with some interesting findings: Buying, they say, is 44 percent cheaper than renting.
Trulia twists the data a bit by presenting very positive-case scenarios for purchasers: For instance, for their base case, they assume a mortgage rate of 3.5 percent, a 25 percent effective income tax bracket, and a buyer who stays in the home for at least 7 years.
However, they are also transparent enough to let the reader change some of the assumptions in the study. Base the calculations instead on a 4.5 percent mortgage rate (perhaps closer to the mark when you take the all-in costs of ownership into account), and you can see the colors in the graphic change a bit.
If Trulia’s information is to be believed, then it is indeed a buyer’s market. And the difference in cost between owning and renting should, theoretically, be about equal to the owner’s profits over the holding period of the investment.
So a few interpretation points for flippers:
• Remember that flipping is still a market-neutral strategy. The die-hard flipper does not care much whether the market is rising or falling, because he doesn’t hang on to properties long enough for market movements to have more than a few points of effect.
• You can rent out your property, rather than sell it quickly, and turn a home into an income stream for you.
• If you do decide to rent out properties, remember that being a land lord takes time, too – and that’s’ time away from your flipping business. If you don’t want to deal with it yourself, you can hire a property manager, like Bradford Real Estate Group to handle all of your management needs.
• If you live in a market where it is cheaper to rent than to buy, you must flip quickly.
• Don’t rely on “the market” to move prices up for you. Sometimes it works, but you cannot control it. It is therefore not a reliable strategy. It can help as a diversifier against other assets, but it is not the basis for a full-time real estate investment practice.
• Do not rely on low interest rates to buoy your price. That tide can go out as quickly as it came in. Eventually, the Federal Reserve will have to start allowing rates to go back up. This is likely if the economy continues to improve. Stress-test your investment strategy to survive an interest rate increase back up to, say, 5 or 6 percent over the next two to three years.