Over the last month, we have seen an increase in the execution of the BRRRR strategy. Now admittedly, some of this execution is due to necessity and not hitting the desired sales price, but nonetheless, it is still an effective exit… even in this market. As properties bought late last year and earlier this year are coming to completion, investors are finding that their underwritten values have stayed stagnant or even dropped some percentage. Instead of accepting the loss, they are holding and cash flowing on a property that they plan to sell in 5 to 10 years. This is an excellent play given that within that period, it’s highly likely that rates will drop from the historic highs of today and they will be able to refinance to increase their cashflow even more in the coming years. Not only that, but the cyclical nature of real estate means that the investor is likely to catch the next market upswing once they are ready to sell the property. Don’t be afraid to wait out of the market by turning a flip into a rental. The beautiful thing about real estate is that so often patience can minimize any mistake made on a property and turn it into a fruitful investment.
The most common challenge I saw last week was investors looking to save time and money by not pulling the correct permits. This only ever costs you more of both resources in the end. When trusting a GC to pull permits for you, double-check within the state’s database to ensure all major permit work has been applied for and approved. Unfortunately, there have been too many times when an investor goes to sell a property and they are unable to, or things are delayed because an incorrect permit was pulled or not even applied for. Stick to the straight and narrow and knock things out correctly the first time, this will allow for a fast, smoother selling process.
One thought from a conversation last week – local matters. Being able to manage your projects by being local and present is key to protecting your investments. In addition, by being local, you begin to understand the personality of your local market – What works or doesn’t work for a particular submarket, what projects are hitting the market, and what properties would be a good target for your own marketing. Here’s why that matters to you: When someone presents you with a deal, knowing what it can potentially sell for without having to call an agent can save you thousands of dollars on not allowing that deal to be seen by others.
Single-family detached home in Montgomery County
DEAL DETAILS: This client is a jack of all trades! They are their own agent and the GC for their deals, saving themselves time and money on all required work. The client is picking this property up at auction and had to consider the hefty auction fee in their purchase to ensure the numbers still made sense. Luckily, they were able to talk with the auction house to secure the property before the bidding went even higher by ensuring a 2-week closing time. The plan for the property is to fully update the home to today’s standard while keeping the 4 bed, 3 bath layout. Recent sales in the immediate area have been unrenovated homes so that will give our subject property a bit of a boost when it does hit the market given it will be in better shape than the neighboring homes. The client plans to spend no more than 4 months from purchase to sale on this project. Given their track record, we have full confidence that this will occur.
There is so much talk about what is happening within real estate nationally, but I am more concerned with regionally. There are markets and submarkets in our area that on a surface level appear to be performing but when you dig into the data deeper you can find that homes with a price point of X or higher are getting less than asking and homes with a price point of Y are getting more than asking. This is why it is so important to know your market and area extremely well. Many of the investors in the region only invest locally and personally, I feel that is what is best for the area. Because local investors know the styles, the neighborhoods, and what the communities like to see. The national investors who look to find hot spots will not be able to compete with the locals when and if times get tougher for the rest of the year. As a lender, it gives me immense joy to see my clients giving life back to the communities that they live and spend so much time in.
I put these newsletters together to share the useful insights that I and my team uncover from all the deals we underwrite and the data we pour through daily. I figured, why not share it?
I would also love to have more conversations about the unique perspectives and insights that you may have. So check my schedule below, and let’s chat about our industry, our market, or whatever else comes to mind.
Sales Manager, WCP