Rising rental rates across the country could tip the scale in favor of your fix and flip business as more renters will be enticed into the buying market.
According to a new study from Zillow, renters paying the median rent of $1,416 could purchase a home nearly 50 percent greater than the median sale price and keep their monthly expenses the same. Factoring in all the expenses associated with home ownership (mortgage payment, property taxes, insurance and maintenance or renovation costs), Zillow figures a renter paying that median price could afford a home valued at $289,500, 47 percent above the March median home value of $196,500. Zillow factors in a 30-year, fixed-rate mortgage, prevailing mortgage rates and a 20 percent down payment. The study also notes that 57 percent of the homes for sale in March were priced under $289,500, giving potential buyers a large selection of homes.
The Local Effect
Of course, these national numbers don't mean as much to your business as local numbers would reflect. Zillow also studied 50 metro markets across the country and found 37 of the 50 showed that owning was cheaper than renting. Charts on their website are set up so you can check markets close to you or that might be similar in nature.
Markets such as San Francisco, New York and Seattle, for instance, offered few homes for sale to match the same expenses as the median rent, but cities with more geographic space to spread out such as Cleveland, Milwaukee and Detroit offered numerous opportunities to purchase a home and keep expenses below the median rent. In fact, in those cities renters could spend double the median home-for-sale price and still match the median rent price.
How You Can Use this Information
While all of this information is good to know and could point to some benefits of being in the fix and flip business, you'd probably like to know how you can use this information to benefit your business:
• Be Aware: First, it's always good to understand the market you are working in. As you purchase and renovate your houses, you need to know more than just how to operate a saw and hammer. You must understand the housing market in your community if you are going to be successful. Knowing how quickly the market moves at various price points gives you the best chance to know where you can work successfully. Just as important is knowing a little about your potential buyers. When you know what your buyers can spend, what they expect in a house, what they can't afford in a house, you will better position yourself to meet their demands. All this information affects your decisions about how much to pay for a home, how much to put into the renovation and how to price your home.
• Make Your Market Aware: Many potential buyers may not be aware that they can purchase a home for less than they pay in rent. You have this information, so share it. Have flyers at your open houses explaining the monthly costs. Place it prominently in your advertising. Put a sign in the yard, "You can own this home for $X per month." Spread the word on social media. Write a letter to the local newspaper. If people in your community come to see you as an expert and one who cares about potential home buyers, more people will become eager to work with you.
As you gain more knowledge about your local real estate market, your potential customers and your community in general, you build a strong business foundation for your fix and flip business, rather than just basing decisions on a whim when you see what appears to be an under-priced house.
As a part of that strong business foundation, finding a partner who is ready and eager to help finance your projects gives you the best opportunity to succeed. Reach out to our agents today to find out how Center Street Lending can be that partner.
Center Street communications are not intended to provide business, legal, tax, investment or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.