Austin a Home Flipper’s Market?

This news snippet below is the sort of thing that paints an unrealistic picture for investors who don’t take the time to properly study and analyze what they are getting ready to do.

Let’s take a closer look at what the article says…

Daily Real Estate News | August 30, 2007
Markets Where a Flipper Can Make a Buck
Flipping went out of fashion last year, leaving thousands of flippers in trouble in many areas, but an analysis by Forbes magazine shows that there are markets all over the country where investors can still turn a profit if they pick their properties wisely.

Really? I’d like to see Forbes send a journalist to Austin to find and flip a home. It’s not that easy. I’m not saying it can’t be done, but it’s very, very risky and there are a lot of owner-occupants and inexperienced investors out there willing to pay too much, which leaves the true number crunchers with little to pick from.

Forbes calculated whether a market is ripe for flipping by using data from Moody’s to calculate a market’s rate of sales against inventory, and to determine supply and demand. Then it looked at current and new-home construction numbers through the end of 2008, based on data from the National Association of Home Builders; the magazine sought out markets where planned new home construction is low.

Then Forbes used price appreciation data from the NATIONAL ASSOCIATION OF REALTORS┬« to get a sense of short-term market direction. Finally, it examined Moody’s figures on investor share. The higher the share of investors, the more sellers outweigh buyers, which is bad news in a bearish market.

That seems like sound reasoning for identifying strong selling markets. But a strong selling market is very difficult to buy in. I was at a gathering of Austin investors/flippers last night, and it’s universally agreed upon by my group that few if any really good deals can be found in the Austin MLS. Most don’t even bother to look in the MLS for the deals they find. That means you have to be out there networking, prospecting or advertising to find motivated and ready sellers who value a 5-day close more than a top dollar sale.

My problem is, if I run into someone like that, I’ll talk them into letting me do a minimal amount of fixup and selling the home for them at a much better price. There are sellers for whom the sales process avoidance is valuable, but most are much better off listing and selling the home through the MLS where a better price can be obtained.

The results identified the following markets as the best candidates for flipping. Here are the best markets, along with the price in each market that would make a home a candidate for a quick turnover.

1. Seattle, $385,000
2. San Francisco, $759,000
3. Raleigh, N.C., $225,000
4. Houston, $150,000
5. Austin, Texas, $175,000
6. San Antonio, $150,000
7. Boston, $389,000
8. Los Angeles, $590,000
9. New York, $489,000
10. Portland, Ore., $295,000

Source: Forbes, Matt Woolsey (07/26/2007)

Interesting that 3 of the 10 cities listed are in Central Texas within 150 miles of one another. Austin still has a good run ahead of us, though the frantic market of last summer has subsided back to just a normal good market.

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