Fix and flip investing continues to be a relevant strategy in today’s highly competitive real estate market. Although rates have stabilized, inventory has remained low in many parts of the country, and highly desirable homes still fetch a great price on the open market. As a broker or lending partner, understanding the shifting market dynamics and how to navigate them will help you and your clients succeed despite changing conditions. Brokers must stay informed to guide their investor clients effectively, and maximize ROI for each deal.
In this piece, we’ll cover the current trends, opportunities, and challenges faced by investors in the fix and flip space and how brokers can stay ahead to find success.
It’s important for lending partners to understand the conditions affecting the fix and flip market today, as it allows them to give more relevant advice to their clients. Property values have remained high since inventory is still limited in many markets. Meanwhile, stabilizing interest rates have made properties more affordable for many potential homebuyers. There are still markets where value-add properties are available and profitable, but there are more experienced investors competing for fewer deals, and competition remains high. Brokers will play a key role in identifying markets and properties that are prime for home flipping, guiding their clients’ acquisition strategies as well as providing them with suitable financing options.
Let’s discuss some of the trends shaping how investors perform home flips given market conditions. Many are shifting towards lighter rehabs projects, preferring to make cosmetic updates that can be performed quickly and at a lower cost. This is mainly due to elevated material and labor costs, which have still not recovered from post-pandemic levels. Faster turnarounds also mean lower holding costs, which allows investors to maximize returns.
Home flippers have increasingly incorporated data-driven deal sourcing into their methods, using analytics and market research tools to find better opportunities. Brokers should take time to familiarize themselves with these tools to assist in the search process, also tapping into off-market opportunities such as auctions, foreclosures, and short sales.
Fix and flip investments demand a different type of loan from a traditional purchase or a rental investment. It can be difficult to secure financing from conventional lenders since they may not be willing to lend on a distressed property. Instead, most investors turn to private lenders who offer programs specifically designed for flipping, with faster approvals, shorter timelines (often 6-12 months), and additional financing for renovation expenses. However, these lenders still have a thorough underwriting process and will place a stronger emphasis on the viability of a deal and the investor’s experience rather than their credit history. Brokers can differentiate themselves in the lending space by connecting clients with dependable, investor-friendly financing options along with lenders that can facilitate these deals.
There are several challenges that investors encounter when trying to succeed in the fix and flip space, but brokers can assist them by offering timely advice and refining their strategies at every step of the process. Shrinking margins are one of the biggest obstacles to a profitable deal, mainly caused by rising housing, material, and labor costs. Brokers should advise their clients to focus on deals where the value-add potential is realistic and feasible. This often means taking time to obtain accurate estimates for both renovation costs and after repair values, supported by multiple contractor estimates and comparables in the same market as the given property.
Another common challenge is construction delays, which not only affects a project’s timeline, but also incurs more holding costs for the investor. To help mitigate the risk of this problem, you should recommend that clients stay involved in the renovation process, including keeping in regular contact with their general contractor to better navigate these delays.
Brokers play a bigger role in the success of a deal than just being a source of financing. The brokers who establish themselves as valuable investment partners are able to keep their pipelines flowing with repeat business. This is achieved by building systems that empower clients to make smarter decisions and win more often. For example, you can speed up the loan approval process by putting together standardized deal packets with deal specifics, multiple comps, and contractor estimates before submitting to lenders. You can also build a network of experienced contractors, appraisers, and real estate agents to recommend for expediting your clients’ projects. It’s also important to stay on top of trends on both a local and national level, as this enables you to give more relevant and strategic advice to clients.
Finally, do not underestimate the power of social media marketing in finding you new clients. Joining local investor groups on sites like Facebook is a great way to connect with potential clients who are already active home flippers. You can also share deal finds, market insights, and success stories on your personal pages to help establish you as an expert in the space while also getting the word out about your business.
In order to maximize the returns on your clients’ investments, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer fix and flip financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.