Why is the housing market so competitive? For starters, the United States currently has a housing inventory shortage. Second, the investment opportunities in real estate far outweigh those within other industries–with home flipping averaging a 27.5% return on investment (ROI) on average–driving more investors to the market.
With a more saturated real estate market, local competition has gotten stiff. Combine that with an inventory shortage driving up prices, and finding a quality fix and flip investment property can be difficult without the right strategy in place.
Outpacing Fix & Flip Competition in Real Estate
Research Your Target Market
If your local market looks too congested, don’t be afraid to branch out and explore other promising areas. Leverage real estate market reports and other secondary competitive market analyses for real estate to uncover key insights, like:
- Population growth
- Job markets
- Housing affordability
- Inventory
This data will help you pinpoint less competitive housing markets with emerging neighborhoods and prime real estate investment opportunities.
Create a Strategy
- “How much will this property cost after repairs?”
- “How much will it cost me to renovate it?”
- “Does this property offer high profitability and ROI potential?”
To analyze a prospective home’s profitability and ROI potential, and calculate whether or not it’s a worthwhile investment, utilize these fix and flip formulas.
From there, it’s important to come up with realistic timelines and costs for renovations and holding times. Always budget for the unexpected. Even the most idealistic flipping endeavor is impervious to unforeseen obstacles.
Understand the Principle of Contribution in Real Estate
The principle of contribution in real estate definition states that the value of a component of property is dependent upon its contribution to the total value of the property. Or, in layman’s terms:
“Does the renovation you are making adequately increase the property’s value?”
Yes, adding a new pool in the backyard may catch homebuyers’ eyes, but does the potential increase to the property’s resale value outweigh the costs? When home flipping in a competitive housing market, it’s critical to concentrate on low-cost, high-return renovation ideas that will appeal to homebuyers and increase your property’s resale value.
Focusing on high-ROI and DIY-friendly rehab projects will cut costs, enhance your property’s appeal, and increase your overall profits.
Build a Fix and Flip Dream Team
For many fix and flip beginners, the temptation to cut costs and increase profits by working independently is too enticing to resist. However, investors quickly come to find that operating independently often leads to:
- Slowing a property’s time-to-market
- Exacerbating unforeseen challenges
- Increasing risk and business vulnerabilities
- Losing opportunities
For fix and flip investors in one of the most competitive real estate markets, time is money. Having a team of essential players (realtors, contractors, private lenders, etc.) by your side to navigate competitive housing markets, speed processes, and provide the flexibility necessary to succeed is essential.
Acquire Flexible Financing
For fix and flip investors, success is contingent on speed and flexibility. Unfortunately, traditional lenders, like banks and credit unions, have significant governmental oversight and must follow strict guidelines. This, in turn, slows loan application processes, mitigates loan flexibility, and makes it difficult to get approved.
That is why experienced fix and flip investors utilize private lenders for business loans, like fix and flip financing, to fuel their real estate vision. While traditional lenders offer business loans to fund a flip, they still come with harsh requirements and the stresses of institutional bureaucracy.
Private lenders, on the other hand, provide investors with the speed and flexibility to navigate competitive housing markets and outpace any competition within the real estate market.
Fix and flip loans through private lenders empower investors with:
Flexible Terms
Unlike traditional lenders, private lenders have flexible investor funding options to meet investors’ unique circumstances.Fast Approval
With quick loan approval processes, investors can outpace their competition to find and capitalize on hidden gems within highly competitive housing markets.Control Over Sale Price
Business-purpose loans through private lenders cover the construction, repair, and purchase of a property at a lower interest rate. This lets investors sell properties at lower prices while still turning a substantial profit.No Prepayment Penalties
Banks and credit unions often penalize borrowers for paying off loans before they mature. Private brokers, on the contrary, have the power to eliminate prepayment penalties and encourage quick repayment.Low Credit and No Downpayment Eligibility
Rather than obsessing over credit scores and down payments, private lenders take Loan-to-Value (LTV), Loan-to-Cost (LTC), and After-Repair-Value (ARV) into consideration when determining business loan eligibility.For home flipping investors wondering how to buy a house in a hot market, fix and flip loans through private lenders is the answer. By acquiring the speed and flexibility necessary to capitalize, investors set themselves up to succeed in even the most competitive housing markets.
