Council Post: Three Predictions For Fix-And-Flip Real Estate Investments In 2023 (2024)

FAQs

Is 2023 a good year to flip houses? ›

Flipping houses has been extremely profitable for the past decade, but 2023 should see the market tightening up quite a bit. With demand sagging, rehab costs going up, and days on market doubling or even tripling, house-flippers have a little tougher path to profitability than before.

Despite what some may think, 2023 is still a good year to invest in real estate, thanks to advantages like long-term appreciation, steady rental income, and the opportunity to hedge against inflation. Mortgage rates are expected to decline, but the housing market is likely to remain competitive due to low supply.

Housing demand from Millennials and Gen Z is also expected to remain strong. While there may be a decline in demand and the pandemic-induced housing boom may slow down somewhat, there are no signs of a housing market crashing again in 2023.

Housing experts don't believe that to be the case. “Despite uncertainty in the economy and the housing market right now, there is little to suggest that the housing market is poised for a crash,” says Bright MLS Chief Economist Lisa Sturtevant.

“Continued inflation, overall higher interest rates, a potential recession and geopolitical tensions will force 30-year and 15-year mortgage rates up throughout 2023, and will bring the two rates closer together as short-term risks rise,” says Dennis Shirshikov of real estate website Awning.com.

Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth for S&P 500 companies in 2023. That's certainly less than what it was in years past, but still respectable.

2023 is a great time to start investing. But so was 2022. The key point is that over the long term, investments generally do grow in value, even if there is some early volatility. It is far better to invest now, whenever now happens to be, rather than waiting for some ideal future opportunity.

As a result of inflationary price increases, real estate can be an attractive investment vehicle. Due to this, real estate can be a wise choice for investment, particularly if you intend to keep the property for a while. Inflation can boost rental income, making it a good source of passive income.

Before a recession hits, home prices are typically at an all-time high. This means that selling your home before a recession will result in a higher profit between the purchase price of the real estate and the sale price, which can increase your capital gains taxes.

Will mortgage rates go down in 2024? ›

Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point. Figures are the predicted quarterly average rates for the 30-year fixed-rate mortgage.

What are experts and data saying about a crash in 2023. It doesn't look like a housing market crash is anticipated in 2023 in California. So far, market conditions for real estate in the state are good. According to the California Association of Realtors (CAR), home sales have declined 45.7% year to date in January.

According to the CoreLogic HPI Forecast, home prices are projected to continue their upward trajectory. The forecast indicates an expected month-over-month increase of 0.8% from March 2023 to April 2023 and a year-over-year increase of 4.6% from March 2023 to March 2024.

They expect home prices to improve in Q3 & Q4 this year, over in 2023 they expect the medium home will delince 5.6% compared to 2022, to $776,600 in 2023 ($822,300 in 2022). They had predicted a median 2023 price of $758,600 forecast last October.

If you need to be occupying your home by a certain date to save on rent, it's a much better deal to close at the end of the previous month (for example, January 30) instead of the beginning of the current month (February 1).

For calendar-year 2023, the consensus earnings estimate is for a 2% contraction. But that estimate is still coming down, and based on historical patterns, could continue to do so. I could imagine it turning out to be a 10%-contraction year.

Utah and Missouri establish themselves as the best places to flip houses in terms of low remodeling costs. New Jersey, meanwhile, has the lowest rental vacancy rate. West Virginia boasts the highest homeownership rate in the US and the lowest housing costs.

House-flipping gross profit and return on investment

In 2022, the average return on investment (ROI) for house flipping was 26.9%, and gross profit was $67,900, according to Attom. Popular as it is, house flipping has become less profitable over the past several years.

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

What to expect financially in 2023? ›

In 2023, economic activity is projected to stagnate, with rising unemployment and falling inflation. Interest rates are projected to remain high initially and then gradually decrease in the next few years as inflation continues to slow.

The answer is no, according to advisors and investment analysts. "Allocating more funds to high-yielding CDs, money market funds, or treasuries may seem prudent; however, this is a form of market timing and should be avoided," explained Jonathan Shenkman of Shenkman Wealth Management.

The "slowing economy is likely to bring the yearly inflation rate down to around 4.0 percent by the end of 2023," Kiplinger predicted.

Holding long-term fixed-rate investments, such as long-term bonds, fixed annuities, and some types of life insurance policies, during inflation can be bad because their returns may not keep up with inflation.

Wise investments for an inflationary economy

But speaking generally, the following real estate investments fare better than others in a high inflationary economy: Rental property, including residential, commercial, multi-unit, and single-family homes will likely have higher than normal demand and returns.

According to Realtor.com's research, listing your home the week of April 16 through April 22, 2023, is the best timing for a successful sale. Realtor.com even predicts that listing your home between April 16 and April 22 could get you $48,000 more for your home than you'd get if you listed it at the start of the year.

Buying a property during a recession has advantages

Auctions may yield a reasonably priced house. To boost the economy, the Fed reduces interest rates during recessions. Banks decrease rates, including mortgage rates. Cheaper mortgage rates mean lower house costs over time.

Will the market crash in 2024? ›

Despite the fact that there are some troubling trends in the housing market, we're likely not going to see a crash in 2023 or 2024. While house prices are likely to drop, demand for housing caused by America's ongoing housing shortage is likely to keep prices relatively stable.

“[W]ith the rate of inflation decelerating rates should gently decline over the course of 2023.” Fannie Mae. 30-year fixed rate mortgage will average 6.4% for Q2 2023, according to the May Housing Forecast. National Association of Realtors (NAR).

1) Interest-rate forecast.

We project a year-end 2023 federal-funds rate of 4.75%, falling below 2.00% by mid-2025. That will help drive the 10-year Treasury yield down to 2.25% in 2025 from an average of 3.5% in 2023. We expect the 30-year mortgage rate to fall from an average 6.25% in 2025 to 4% in 2025.

Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.

Fannie Mae: Economists at the firm predict that U.S. home prices, as measured by the Fannie Mae HPI, will fall 1.5% in 2023 and another 1.4% dip in 2024.

The 70% rule is a general rule of thumb, which is a useful tool for real estate investors who are trying to determine the viability of a house for flipping. The idea is that investors should spend no more than 70% of the home's ARV minus the cost of the repairs and renovations.

It depends on your finances, time management, and the availability of homes in your area. The average real estate investor flips 2 to 7 homes a year. You may flip more or less – depending on your capabilities, experience and time availability. So what determines how many houses you can flip in a year?

One of the biggest risks is that you may not be able to sell the property for a profit, or the repairs and renovations may cost more than you anticipated. You also need to be aware of the potential for fraud and scams when flipping houses. Not every house is a good candidate for flipping.

Ultimately, if an investor buys and fixes a property, and then isn't able to sell it, they've spent a lot of money and made no return on their investment. That being said it can be possible to keep flipping houses and making a profit even in a market downturn.

What is the average return on a fix and flip? ›

How much profit should you make on a flip? On average, a rehabber shoots for a 10 to 20% profit of the After Repair Value, but it varies depending on the market and the specific project risks. A 10% profit would be on the lower end, and a 20% profit would be considered a 'home-run' by most rehabber's standards.

How much do California flippers make? The profit per flip in California may not be as high of a percentage as in some other states, but California flippers can still make a substantial profit. The average flipper in the state had a gross profit margin of about 16% and a profit of $92,500 in 2022. That's not too shabby.

Larger than average lots in the neighborhood are generally favored. Be prepared for a price adjustment if the lot is smaller than average. Make the most of what you have. Providing privacy for the yard through fencing or landscaping, and making the yard appealing can make a significant difference in your house flip.

The short answer

According to our house-flipping research, there were over 407,000 single-family homes and condos flipped in 2022. The average gross profit on a flip last year was $67,900. This equals a return on investment of 26.9%.

Check for obvious mistakes in the renovation.

During the showing, take note of loose outlets, drafty gaps in doors and windows, or fixtures in strange places; these could be red flags when buying a flipped house. It's also a good idea to turn on all the major systems and appliances and ensure they're working properly.

The Bottom Line: The 70% Rule Is A Good Rule Of Thumb, But It's Not A Substitute For Detailed Analysis. Flipping a home can be a profitable endeavor, but new investors should understand that this real estate investment strategy carries risks.

Flipping a house could require several hundred thousand dollars or almost no upfront money of your own at all. Everything from location, to condition, to your credit score can impact how much money is needed to flip a house. And no two flips are exactly alike, which means the cost changes from project to project.

ATTOM has measured house flipping activity since 2005 and found that the practice was most profitable, in pure dollars, in 2021 — when investors pocketed an average $70,000 per property. Investors profitted the least amount in 2008, racking in a mere $30,000 per flip.

I think the hardest part is getting it clean and tidy and then maintaining the home throughout the listing period while still trying to live your life, especially if you have children.