Many people have felt that spark – the desire to makeover a home from the ground up. Fix and flipping should probably start qualifying as a piece of the American Dream, but how did we get here? As memories of the housing market crash of 2007 continue to fade, banks and other lending institutions are losing their bashful tendencies about lending out on fix and flip projects. AlphaFlow, an investment firm which buys back real estate loans from lenders, reports a 50% growth in lending institutions which fund real estate projects in the last two months.
This growth is fueled by two factors – market interest from the vast amount of people interested in fix and flips and the short-term, high-interest nature of loans for fix and flipping. With the average annual interest rate of these loans falling at nearly 8%, banks looking for exciting prospects would rather capture money in the fix and flip interest than the paltry 3.1% average interest rate on a 30 year mortgage.
With crowds of buyers flush with money and a limited housing stock in many areas of the country, sellers have been able to raise prices to more premium standards.
With return on investment remaining high on fix and flip projects, banks are eager to get in on the funding of said projects. According to Attom Data Solutions, the year of 2020 brought a record high to gross profits for house flippers – averaging about $66,000 per project. Much of this newfound interest in buying fixed up homes is being fueled by former city dwellers who sought to escape the urban environment throughout the pandemic. With crowds of buyers flush with money and a limited housing stock in many areas of the country, sellers have been able to raise prices to more premium standards.
The trade off in this relationship is that as flippers pushed prices up for flipped-home-buyers, the prices tags on properties to be flipped have also begun to rise. This, of course, allows for financers to dole out bigger loans, making for bigger returns on the interest of those loans. Better prospects for lenders means a multi-level interest in flipping projects.
With many cityfolk continuing to seek a more suburban environment with bigger homes, many experts expect a continuing growth for the fix and flip market throughout 2021. Confidence in this trend is reinforced by statistics which show another market meltdown as was seen in 2007 is unlikely. With a lower building rate of new homes, the housing stock across the country has remained lower than the years before the previous crash. This combination of low-stock, high-return on investment has led to the markets in Arizona, Georgia, Nevada, Tennessee, and Alabama to be the hottest.
This low-stock situation has created a change in strategizing for many flippers
This low-stock situation has created a change in strategizing for many flippers, though, as the competition for properties has increased, many flippers are focusing on a smaller number of projects. In most cases, flippers will focus on smaller homes which are easier to fund with their existing capital. With the demand from families seeking larger homes, it’s likely that the market will see an increase in the number of bigger projects which require more fortified funding to complete.
If you’re like the droves of others seeking to begin your journey into the fix and flip market, EMCAP Lending has your back. Our lending models are designed specifically to fund your commercial real estate ventures with a builder-friendly closing process and personalized financing packages. To see how we can help fuel your goals, contact us today!