Home prices are on the rise and available inventory is scarce in some Midwestern markets, but real estate experts say itâ€™s still possible for intelligent investors to make money on fix-and-flip or renovate-and-rent properties in the region.
Itâ€™s harder to parlay property into profits than the fix-and-flip TV programs make it look, though. And hopeful homebuyers are watching those same shows, says J. Scott Scheel, founder and CEO of Commercial Academy, which provides coaching and other services to those interested in investing in real estate.
â€śI think people are a little more sophisticated and are looking for quality as well as value in the market.â€ť
Renovators wonâ€™t fool savvy shoppers with cheap finishes or shoddy workmanship, Scheel said. So investors who want to buy, renovate and resell homes successfully must spend smart and know what buyers want in their local markets in order to make money without cutting corners.
â€śAny quality product that comes on the market right now is getting sucked up pretty quickly at or near full asking price,â€ť Scheel said.
Recent figures from ATTOM Data Solutions show 48,457 single-family homes or condos were flipped in the first quarter of 2018 nationwide, representing 6.9% of all home sales. Thatâ€™s unchanged from a year ago, matching the highest home flipping rate since the first quarter of 2012, according to the property data provider.
But renovators face the same conditions as average homebuyers, meaning they are paying higher prices in many markets and have a limited inventory to choose from when picking their next property project. So, while gross profits per flip rose to an average $69,500 in the first quarter of 2018 compared with $66,287 in the first quarter of 2017, that translated into an average 47.8% return on investment compared to the original acquisition price, down from 50.3% the year before.
Since bidding and buying is becoming more competitive and costly, experts say renovators are starting to explore new neighborhoods. For instance, Scheel says second-ring suburbs could be packed with profitable properties for an investor who understands the local market.