It’s still prime time for flipping houses in Philly, but there are signs that the housing market is slowing down, and economists warn a recession is coming.
Will it happen next month? Next year?
(Actually, it doesn’t matter. A smart real estate investor Philadelphia will follow time-proven strategies in every market, and will expect and prepare for ups and downs no matter what.) Review these smart strategies will keeping you flipping houses and returning profits even in a market that is cooling off.
1. Determine your maximum offer
While you may be in the habit of acquiring houses at around $45,000, in a cooling market where it may become harder to resell at your typical price point, it’s more important to go into negotiating with a definite maximum offer. Run your comps and stick to the most recent sales (both as-is and retail). Before setting your maximum, rerun your math with a 10 to 15% reduction to the ARV to see if this deal still works if there’s a price drop while you’re rehabbing it. Knowing your exact maximum offer (instead of “around $45,000”) will help protect your ROI even if the margins tighten up.
2. Offer below the seller’s minimum price
Real estate investors use many different negotiating strategies. If you like to get the seller to give you their minimum acceptable price, you can justify offering them much less by explaining how the housing market is cooling and how much your rehab deals have changed in the last year.
3. Make it a cash offer
Sellers hate accepting offers that fall through. Offering cash (without a contingency on financing) shows you’re a serious real estate investor Philadelphia and that can make it easier for the seller to accept a lower offer.
4. Be ready to roll with your hard money financing and contractor
As soon as the seller accepts your offer, draw up your scope of work and apply for financing. Even if you’re acquiring the home with your capital, if you plan on borrowing for the rehab, get on it! If you didn’t develop the scope of work with your regular contractor, once you have it shop it around and get bids. You might still be working on the closing, but if you can get your financing and contractor lined up, you’ll be ready to get the rehab rolling on closing day.
5. Start selling when you start renovating
Start trying to find a buyer as soon as you start the work. Build your sales pitch on your reputation—‘This is my 26th flip and here’s what we’re doing to make this house a great rental property investment…’ By selling it you’ll give the project an end date (closing date). Everything you can do to shorten your flipping timeline is beneficial in a cooling housing market. Even if your profit margin takes a bit of a hit, by speeding up your turnover time, you’ll earn more profit by completing more houses. This is a good discipline for scaling up your operation.
If Philly’s housing market is cooling, following these strategies will make you a smart real estate investor Philadelphia.