rebounding (2)

Which type of neighborhood is best for flipping homes?

When looking for an investment home that you eventually intend to flip it is important to remember that the location is just as vital as the actual home.  It is feasible to earn a profit in nearly every area but certain areas make it easier on the investor.

Top Qualities

When people pick out an automobile they focus on the features that are important to them and their current lifestyle.  In a similar manner, you can consider the following neighborhood features when considering an investment property:

  • Homes that sold recently sold quickly and had strong interest
  • Declining numbers of rental properties
  • Homes at least 20 years old that will likely need significant rehab
  • Steady values or, even better, increasing values
  • Average age of homeowner is elderly; these people are potentially moving to better climates or downsizing
  • Increased number of people moving from differing areas; signifies popularity

Three Types of Areas to Examine

In order to assist you in determining where to look for the right homes, here are three types of neighborhoods to consider.

  • Rebounding areas – There are times when an older, well established neighborhood will undergo a major overhaul.  Many of the owners have made the decision to remodel the interior.  In some instances the owners may be undertaking expansive additions.
  • New housing clusters – When an area becomes popular many builders will start developing new subdivisions.  The existing homes in the immediate area could be ripe for flipping.
  • Farming region – Established real estate agents like to focus on an preferred area and call it their “farming area.”  They send out regular postcards and newsletters to the residents so that when a home comes up for sale they usually think of that agent first.  A home investor can follow a similar strategy and be the first to know of a potential home for sale at a discount.

Keeping Your Ear to the Ground

Some investors like to focus on their own zip code or a nearby area.  This makes it easier on them because they already know a bit about the location.  There is no long distance commuting to check out a potential property. Sometimes, neighbors can actually provide a good tip that leads to a purchase.  And the local gossip is usually easy to find.

However, this only makes sense if the area is holding steady or rising.  A neighborhood suffering from falling values, crime, or an imminent new highway is not a good choice, no matter how close it is.

Don't Get In Over Your Head

This should come as no surprise, but it is also important to remember your financing.  Finding a great home at a 40% or 50% discount is worthless if the home is $50,000 more than you can afford.  Always keep the price in the forefront of your mind since it is a very important piece of the elimination process. If a neighborhood is out of your price range, focus elsewhere.

Following a well-designed plan is important for almost everybody.  Building a business, planning a party and even putting together a family vacation all work more smoothly when there is a good plan in place.  Buying a home for flipping is no different.

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Is The Real Estate Market Really Rebounding?

I have been asked by both my own clients, members of REOPro and the Mather Network, as well as my vendor partners about my thoughts on the real estate market rebound.

My first reply is always to remind people that real estate is directed correlated to unemployment and therefore, as long as unemployment is high, we will NOT have a rebound in real estate.

Normally, I get a lecture about how local real estate prices are on the rise and inventories are down so, isn't that proof enough that we are in a rebounding real estate market?

Sure, real estate markets, like any market, is a servant to the law of supply and demand and yes, when supply is down and demand stays the same, prices go up. Yes, that is happening so, if that is all you measure a rebound against, sure we are rebounding. The problem is, it's foolish to not ask why. Why is supply low?

With a continually high unemployment rate, shouldn't we be seeing the same amount of foreclosures? Sure we should but, why aren't we? I checked with my own local Sheriff's department to see how many foreclosures they did in 2013 so far. I was told, "We have done more foreclosures in 2013 than we have any time before." So, where is all the inventory....why do we have a inventory shortage. In fact, how is that possible when unemployment is at 2008 levels, the height of the housing crisis and when the Sheriff's department is reporting record evictions?

These are all important questions and really need to be answered because, from what I can tell, it appears housing is going through another bubble of sorts. Obviously something is artificially holding inventory off the market to manipulate the law of supply and demand but, for what purpose, what end game?

So, I had to look and see who are the largest holders of default property, HUD, Fannie Mae, Freddie Mac, FDIC, VA, and Bank of America. Well, what do we know about these companies / quasi government entities......all controlled by the Federal government. I had an insider over at Freddie tell me that they have all of these different programs now....namely, deed-in-lease, to keep homeowners in homes and therefore, avoid the foreclosure all together. She went further to tell me that even though they are avoiding the foreclosure, it has no...ABSOUTELY NO, reflection on the ability or inability of the previous homeowners, now renters capacity to pay a mortgage or any of the actual debt due on the mortgage.

She was just speculating but, she went on to tell me that in her opinion, it's likely that 85% or more of those in the deed-in-lease program and others like that, are just buying time because they will never be able to buy the home back, pay off any of the debt or be able to go out and purchase another home any time soon. She and I agreed, it was just a way to keep property off the market even though, without any intervention, it would have been on the market months, if not years ago.

Why would this be happening, why would the government want to artificially inflate prices by keeping property off the market?

1. Raise Property Values: It's not even a question amongst the minds of those in the know, the government wants to inflate prices. The reason is because they are losing so much money through Fannie and Freddie because of foreclosures and short sales that, it's just simply best for them to hold the property, decrease inventories, manipulate the law of supply and demand, raise prices and trickle the REO holdings back on the market so that they can sell for more than the debt owed.

2. Elections Have Consequences: Whichever political party can go out to voters and say that they are responsible for housing prices being on the rise, they will get re-elected....at least that it the thought.

All in all, the housing rebound isn't real, it's artificial for a variety of reasons, not just the two I gave above. The truth of the matter is, many feel this heavy handed control by the government of housing markets is absolutely necessary to prevent the further collapse of the US economy. Others see it as a prolonging of the inevitable and a violations of the free markets. Either way, with increasing debt, increasing unfair manipulations of the market, higher taxes, higher cost of living and higher energy and commodity prices, housing will begin becoming more and more volatile. I believe the days of housing being a safe investment are over. So many outside factors are now playing in the market, regardless if they are suppose to be there or not, it's just not as simple as it was just 10 years ago. Buyers are going to have to be much smarter before the purchase and understand that a minimum of 20% down and staying in the home for a minimum of 5 years might be the only way to get your money back, let alone make any money.

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