I had a call recently from a “would-be” real estate investor. He wanted me to find a few properties for him to flip. He’s been looking at the Atlanta market for a few years (his words) and decided that now was the time to jump in and flip some properties.
Specifically, he was looking for entry level homes that he could pick up needing a little work, maybe in the $50-75k range, needing $10-15k worth of renovation. His goal was then to sell them for $100-$125k. East peasy.
Except, it isn’t…
In fact, right now that would be ANYTHING except easy peasy. It would be quite difficult. And here’s why…
- A few Billion Dollars in “hedge fund money” floating around the Atlanta market
- A market turn that while not “complete”, is far from unnoticed.
- A limited inventory, especially on the entry level end.
- Lack of easily available financing.
This was a guy without a load of cash, unable to offer quicker closes than “the next guy”, and unable to out-spend the competition. He was not only convinced that there was a glut of homes, but that he was completely in the driver’s seat on these types of deals.
That is NOT the case. In fact, small investors are regularly SHOCKED at what the hedge funds are paying for houses right now. They are bidding them up on the open market. They are bidding them up on the Courthouse steps. They are willing to pay top dollar whenever and where ever they find them.
They don’t care what they can sell them for right now. They are looking at 5 year turns… with rental income in the mean time. The “over-payment” will be erased by the rental income and the increase in values over the next few years.
If you want to compete right now, THAT is what you have to compete with. A few years ago, you might have been able to pick up a cheap property and flip it… not so much any more.