June, 2016

Entry Level Homes Still the Best Bet for Flippers

While many investors are enticed by the larger potential profits of high-end real estate, statistics continue to show that your best bet is to stay in the entry-level price points sought after by first time homebuyers.  More experienced investors might find success from time to time in the luxury space, but when analyzed on a percentage basis, high end homes rarely return the profit margins found in “work-force” housing or entry-level properties that fall at or below the median home price in your area.  Recent news regarding inventories on entry level homes brings this point into much better focus.

Recent data reveals that there are currently 10.4% fewer entry level homes on the market today than there were at this time one year ago, and those inventory constraints are driving prices up even higher on homes in these price ranges.  While recent price appreciation has been in a healthy 5-6% per annum range, the MAJORITY of that appreciation has come in the 1st time home buyer range.  Homes in the “move-up” and luxury price ranges have been rising at a 2-3% clip in most areas, while their entry level counterparts have been jumping at rates near 10% per year.

New investors will find that their is significantly less competition in the luxury market, but it can also be fraught with risk for even the most experienced flippers.  If a real estate rehabber doesn’t have at least 10 deals under his or her belt, it’s advisable that they continue to stay in the 1st time home buyer range to continue to build confidence and much needed capital before taking on more expensive projects.  The “get rich slowly” method might not be as exciting, or land investors a show on HGTV or DIY network, but those who read the book, “The Tortoise & the Hare” will find that the same character wins every time.

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