REAL ESTATE Q&A: How to be a successful “fix and flipper”?
YOUR JOURNEY HOME
Free Press Real Estate Columnist
Q: Is there a viable opportunity in Grand Junction/Mesa County for “fixing and flipping” in today’s market? And if so, what does it take to be successful?
A: If you read this column a few weeks ago, you may recall the median house price in the Grand Junction market has been rising only slightly since this time last year. On one hand a potential investor might think that suggests there is little room to buy low, fix and sell high(er) aka “flip”; at least among houses listed for sale in the Multiple Listing Service (MLS).
Talking with various members of the local Real Estate Investors Network (http://www.meetup.com/REIN-WesCo-org/), a number of them have been successful with fix-n-flips this year. One example just closed last week. A group member purchased a bank-owned (REO) property listed in the MLS in 2012 for $144,000. As a general contractor he did much of the work himself and recently sold the house, with $60,000 of hard costs into it, for $276,000. He also had holding costs of mortgage payments, utilities and insurance; plus his own labor.
When all “costs” are factored in, the profit may not be as easy to calculate as just to say $276,000 sales price minus measurable costs of about $215,000 for a net profit of $63,000; but, that estimate is in the ballpark. Not a bad return on a fix-n-flip.
Other REIN members have had success finding properties at lower than market prices at the weekly public trustee’s auction http://www.mesacounty.us/publictrustee/. Here the public has an opportunity to purchase a foreclosure property before it is listed for sale with a realty company. Some REIN members who buy this way say that it takes practice, persistence and nerve to make the split-second decision to make a bid and commit to the purchase of a property they have not inspected on the inside.
Among MLS-listed properties, in mid-July there were 81 REO or HUD-owned properties for sale with average and median prices of $164,000 and $139,000, respectively. One-hundred REO and HUD properties are currently under contract and year to date (YTD) 336 of these distressed properties have been sold. Average and median prices for the REO and HUD properties sold are $127,000 and $116,000. This might seem to suggest those investors looking for distressed properties want the low end of the price range.
Now, let’s look at sales prices of non-REO or HUD properties. While there is a huge range of sold house prices, the average and median prices of solds YTD are $227,000 and $207,000. Admittedly, this is a very crude comparison tool but the sales prices of bank-owned and non-bank-owned properties is nearly $100,000 lower.
In a much generalized way, you may look at that as suggesting a YES answer to your question: Is there a viable opportunity for “fixing and flipping” in today’s market?’
WHAT DOES IT TAKE TO BE SUCCESSFUL?
• Being ready to make a quick decision when the right property appears.
• Doing as much of the work yourself as possible to keep “fix” or construction costs down; and evaluating when to say enough “fix” is enough for a particular property
• Picking a neighborhood where you know recent sales support getting back your investment costs and a profit
• Being realistic about a sales price and not leaving the house on the market for months hoping to squeeze a few more dollars out of a sales price while losing money on holding and opportunity costs.
• Making the choice to hold and rent the property for a year or more if it turns out the market will not support the costs you have in the property and want to recover. However, by holding for 12 months or more you may qualify to do a 1031 tax-free exchange, thus saving money on the tax consequences of what the IRS considers “short-term” ownership of less than 366 days.
In the big picture of things, the Grand Junction market is a healthy one for fix-n-flip opportunities for the right kind of person: One with nerve, skills money and vision.
Doug Van Etten is a local Realtor with Keller Williams Colorado West Realty. He is also founder and organizer of the Real Estate Investors Network of Western Colorado (www.REIN-WesCO.org). For information about buying or selling a home, investing in real estate or joining REIN, contact Doug at 970-433-4312 or DougVE@kw.com.
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