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The Future Landscape for House-Flipping

  • May 22, 2020

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The Future Landscape for House-Flipping

Anyone who thought house-flipping was easy got a big surprise once they got into it. Those home-buying shows present a pristine, edited image of what it’s like to find, fix, and flip a house. The reality involves a lot of sweat, sometimes blood, and often tears. The pandemic has stopped flipping in its tracks just as the busiest selling season began. No one is sure about the future landscape of house-flipping, but a few trends have begun to emerge.

Slow and Spotty

Job losses and unpredictability in the economy will cause a downturn in home sales. Mortgage applications were down sharply in March, and there’s no reason to expect a pickup any time soon. However, wide variations exist between local markets. Local inventory, attractive pricing, and desirable features may all help sell newly fixed-up homes. For example, Las Vegas has been very hard hit because of its reliance on tourism, which caused the disappearance of jobs in the entertainment and hospitality industries. Seattle, on the other hand, had benefitted from very low inventory, so buyers who need houses there are willing to pay more.

Virtual Showings and Online Closings

Many states and municipalities have deemed real estate business to be “nonessential,” causing activity to grind to a halt. Zillow, the online real estate giant, ceased all buying activity for a time for its flipping operation. Social distancing requirements also make showing and closing on a home a challenge. Fortunately, tech-savvy investors can produce virtual tours, and in some states, virtual closings are permitted. Virtual staging services can enhance photos of vacant houses with digitally added furnishings. However, sellers must ensure their online descriptions are scrupulously accurate and that any virtual enhancements are fully disclosed.

Still, it’s unreasonable to expect a buyer to close a deal without actually seeing the house. No one wants to attend a crowed open house right now, so some real estate agents have devised appointment procedures, social distancing protocols, and precautions such as masks, gloves, and sanitizers to enable limited showings for buyers who need to find places to live.

Financing Woes

A variety of loans support house-flipping, but one of the most common types—a hard money fix-and-flip loan—has left many flippers making payments at extremely high interest rates while their flips remain unfinished as their contractors shelter at home. Flippers with fix-up skills of their own might be in a slightly better position, but some kinds of work require licensed professionals. Budgeting for a total shutdown of work for an indefinite period wasn’t really in anyone’s flipping plan, but flippers who made the common flipping mistakes of going over budget or failing to have a plan B are certainly suffering for it now.

The landscape for house-flipping in the future is uncertain, but most financial experts agree there will eventually be a rebound. People need homes, and others need to sell them. Flippers, lenders, contractors, and buyers will need creativity, patience, perseverance, and planning to make it through the present crisis to a more normal future.