As the housing market shifts in 2023, real estate investors looking to fix and flip will face both challenges and opportunities. Because return on investment is never fully guaranteed, developing a clear plan to address unexpected market shifts is critical. So, what three factors may impact how you evaluate new investment fix-and-flip opportunities in 2023?
1. A dramatic increase in foreclosure activity is happening.
Housing and rental demands will remain on the rise this year, but a potential recession—resulting in rising unemployment—could lead to more foreclosures. As reported recently by ATTOM, foreclosure filings are up more than 64% since 2022. One in every 4,580 housing units had a foreclosure in November of that year. While the activity differs across the country, states with the highest foreclosure levels included California, Texas and Florida.
The increase in foreclosures will result in more inventory options for those looking for real estate investment opportunities. However, investing in this kind of real estate property is best left to experienced investors with proven liquidity because foreclosures present a complex purchasing journey.
2. Residential rental rates will keep growing.
Remote work, rising interest rates, rent increases and changing lifestyles all factor into financial and personal decisions. That’s why renting or buying is more confusing than ever for investors and tenants alike.
Mortgage rates have nearly doubled this past year, leading potential homebuyers to worry about the feasibility of owning. The average purchasing power of someone who could afford a home valued at $500,000 with a 3% interest rate previously can now only afford a home valued at $335,000 with rates as high as 6%. Overall, single-family home affordability has dropped to levels the market hasn’t seen since 2006.
As a result, potential homebuyers are simply sticking it out in rental units, even at higher rents. With fewer people entering the house-buying market, it may be harder for fix-and-flip investors to make a return in an ideal timeframe.
3. The housing market will favor the buyer by the end of the year.
While we saw mortgage rates above 7% during the last months of 2022, 44% of economists and housing experts say the housing market will shift positively by the end of 2023. The talk of reduced mortgage rates by year’s end will provide more opportunities to invest in real estate, whether for flipping or renting. However, recession chatter has given reasonable pause to less-experienced real estate investors without a clear business strategy. Many are conserving their cash and cautiously sitting on the sidelines to see what happens. If the market does shift in the buyer’s favor, the combined factors of demand, increased foreclosure activity and stabilizing margins could then open potential opportunities for all real estate investors.
So what should you do next?
If you’re thinking of investing in a fix-and-flip property, do proper research into areas that offer the maximum potential in 2023. Next, find a lending partner who focuses on your best interests through a personalized, tailored approach. Then, when planning your rehab of the property, keep in mind how home values are adjusting. Understanding home values can contribute significantly to your ability to earn profits when selling or renting if the market is working in your favor. Finally, remember that, even after doing all the prep work you can, there’s no guaranteed way to earn a return on your investment. So, be sure you’re capable of riding out an unpredictable market.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Source: www.forbes.com
