Renting & Flipping
Conshohocken has been traditionally known as a good area for a rental investment, however just recently in the past 5-7 years the flipping (buy-rehab-sell) market has been very successful for those who know how to do it right.
Let’s first look into the rental market.
Typically, an investor would purchase a home, do some minor repairs and rent it at a marginal profit over the mthly PITI (principle, interest, taxes and insurance) decreasing the loan amount while over time the home increases in value. Most investors are investing in their future earnings for this type of investment. This was their retirement income (mortgage is paid off and rent coming in) or for a child’s college tuition.
During the recession, many homeowners and builders became landlords out of pure necessity. Sale prices and interest rates were at an all time low and buyers who were looking for their “move up” purchase could not sell their first home due to the decline in the first-time home buyers. The buyers of their homes were now college graduates who found themselves unemployed and with no future certainty could not purchase their first home, forcing the “move up” sellers to instead rent their homes to those who should have been first time home-buyers. Same for builders, they either had new construction or renovated homes that they could not sell.
This caused a shift in the market not only increasing the inventory of rentals, it also changed the type of home that could be rented. Homes that were beautiful and well maintained by the landlord who had lived in it, then there were the new construction and beautifully updated homes by small builders. Traditional landlords were finding it hard to compete with this type of inventory. The once first time home-buyer had now become the desired tenant driving prices down yet increasing the quality.
Today the rental market has normalized with the first-time home-buyer market regaining its momentum, however the rental market in Conshohocken is forever changed. Tenants still desire higher quality homes and investors are meeting the demand however, the pricing has increased significantly. More and more homeowners are staying in their homes longer and/or moving, yet keeping their home to rent in Conshohocken. This has caused such a low inventory of homes to purchase the first-time home-buyer now needs to rent in our area until they can find a home to buy (again low inventory increases sale prices). Not to mention these same first-time home-buyers are competing with downsizers for rentals and purchases. (That will be my next article)
What is flipping?
Buying homes, renovating and selling them has really grown into a separate market in the last 7-10 yrs. Why? During the downturn in the economy many homes fell victim to a short sale or foreclosure that typically sold for much less than what was owed to the banks and either due to the frustrated and angry homeowner or vandalism these homes always needed repairs and/or updating to sell to another homeowner. Since the new construction market had come to a screeching halt many small builders started buying these homes, renovating and selling (or renting) at a small profit to survive and ride out the recession.
As the market started to regain momentum (especially in our area) those same small builders began selling those renovated homes and building new construction opening the “flipping” market to non-traditional investors. What really caused such a surge was the once hole in the first-time home buyer market was now being filled by the current tenants in Conshohocken who came out in droves due to the stronger economy, rising salaries and confidence in their future they are willing to pay more for the same quality home they rented during the recession and really demanding from the market. They have no interest in homes that need repairs or updating, they want to buy retail. This caused non-traditional investors to begin purchasing those tired homes, renovating and selling at a premium. However, if you are not experienced in construction this type of investment is NOT for you. I have seen too many people lose money thinking it is an easy way to make money. Adding modern amenities to an older home is harder than building a new home. Any unforeseen repairs will bankrupt the inexperienced flipper who did not prepare in advance.
I meet with many people each year who want to start flipping homes. Once I sit down and go over the process and what is needed to be successful most of them either no longer have interest or become landlords instead.
My advice to anyone who is considering investing to rent or flip should find a local agent to that area who knows the market and can guide you in the right direction as to which is right for you and walk you through the process.
Binnie Bianco, REALTOR