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4 Market Indicators – Choosing Areas Ideal For Flips
It can be hard to understand for some, but people who regularly flip property don’t always do it just for the money.
While the financial benefits undoubtedly play a huge role in motivation, a lot of times, flippers are also significantly motivated by achievement, bragging-rights, self-image, fun and pleasure, etc.
And whatever the case, no matter how much of a non-believer you are in flipping real estate, there will come a time where you have to give it considerable thought if you are in this business long enough.
Sure long term rental properties is the way to go.
Yet every once in the while, a great opportunity can arise that you might feel that you are letting yourself down if you don’t take advantage of it.
So how do you determine whether a house would be a good target for a flip when you have never entered this arena before?
The answer of course is… it depends… on various factors.
But for a start, you should spend some time going over these macro market indicators to have a clearer view of what it is you are getting into.
1) Population growth
In long term real estating, population trends play a major role in influencing the overall movement of sale prices and rental in the area.
Because of the time gap between demand and supply in real estate cycles, demand can often outstrip supply for an extended period of time.
In the period where demand grossly exceeds supply, a seller’s market takes shape.
This makes it much more easier to move houses to another buyer even when pricing it 10% above what it is really worth.
This is not theory here. This can be evident in various states and countries all over the world.
A influx of buyers and tenants inevitably pulls prices up, and value up together with it.
The question now then, it whether a substantially high population growth is sustainable.
On the other end of the spectrum, there is also every chance that population is not growing but declining.
Investors often make the mistake of having a hunch or instinct with where population trends are moving. But you must learn to realize that what you can see and observe in a particular local area cannot apply to the WHOLE area.
Numbers don’t lie. And you would be lying to yourself if you insist that they do.
Either the numbers have to back up your observations, or they can tell an alarmingly different story to what you believe.
In this case, run.
There’s a secret reason why employment indicators are such a huge focal point to politicians.
Yes, they tell the story of whether people are able to find work and generate an income from jobs.
But what governors and senators don’t always say is that job growth plays a critical role in real estate prices. And if home prices fall, there are going to be a flurry of unhappy homeowners as declining values often affect whole areas.
A type of particular good news to real estate investors and flippers is when big companies make announcements of them entering a particular city in a big way.
This means that the company will be bringing people into the city in the form of employees. They need accommodation.
Local residents will also be able to upgrade their jobs or become employed from a period of unemployment. This makes it enticing to upgrade their houses.
An increase in population will also drive up the demand for consumer products and services, bringing more people into the city.
It all adds up to a mouth-watering opportunity for flippers.
However, the prospect of companies leaving the city is basically bad news to landlords and flippers.
Why would you even undertake the risks of flipping houses when the number of prospects are declining by the day?
Are you late to the game?
Remember that even though you might be a very established real estate investor in your own right, that you are competing with billion-dollar corporations in the industry.
And very often, with their reach and resources, they have already made their play years in advance before you.
A strategy often used by major developers is to flood a market with supply as fast as possible. This often leads to overbuilding.
You would have your back up against the wall when trying to flip a property when potential buyers have the attractive alternative of a brand new house or condominium a couple of streets away.
An oversupply would lead to a buyer’s market. And that is very bad news for flippers.
However, this is not the end game.
There is every chance that even though current prices are high, they can still go much higher.
So the question you have to ask is how strong is the fundamental economics of the local area?
Unless you have a very clear answer that is positive, the odds of flipping a house in such conditions will not look favorable.
4) Living trends
This is more of a qualitative indicator rather than a quantitative one.
While indicators like divorce rates, average number of people in households, average age of new marriages, etc, are quantitative, it is how you make sense of these numbers qualitatively that makes all the difference.
Socio-economic data can often be retrieved in the local statistical office. These reports will show you all types of social trends that the city is experiencing.
Will these lifestyle trends be conducive for flipping property?
With all these said, I must add that flipping real estate is a risky business to get into when you are new to it. If you have to take the bull by it’s horns, it is best to at least have an experience flipper available for advice and guidance.