Investors are Spending More Money on Properties

The real estate market continues to evolve, but one thing is certain: investors are spending more money than ever to flip.

The housing market is still hot and investors are still cashing in. Sundae’s newly launched Q3 report analyzes the state of the U.S. real estate market as it relates to investors across various real estate markets.

One key finding from the report is that investor sentiment continues to increase. As the bull market stays strong and home prices go up, investors continue to buy. Read on to learn what’s behind this trend.

Why? Inventory and Demand

Home values are also skyrocketing across the board, with a near 20% increase over the past year. There are a few likely reasons for this, including that overall housing inventory remains low, especially in places highlighted in our report — Inland Empire, Los Angeles, Oakland, Sacramento, and San Diego — where overall demand remains high.

No matter the city, investors are paying more for properties across the board. This means, of course, that flippers and investors are competing with people who want to live in the homes they buy (non investors). These non investors are also paying cash and driving up prices. Even though the lower price ranges on purchased flips are shrinking and the high end purchase prices are still growing, investors continue to double down. This indicates a high degree of investor confidence that there is still upside potential.

A Look at 5 markets where investor purchase prices went up

The overall U.S. trends play into a closer analysis of the Inland Empire, Los Angeles, Oakland, Sacramento, and San Diego real estate markets. In each, investors are paying more (sometimes a lot more) for properties. Median investor purchase prices increased across California as follows:

  • Inland Empire: 51.25%
  • Los Angeles: 26.72%
  • Oakland: 26%
  • Sacramento: 63.09%
  • San Diego: 35.42%

Despite record increases in pricing, investors weren’t deterred. Home prices continue to increase, which means that they are spending money on the front end to make it back when they flip months down the line.

Median investor purchase prices for each market increased significantly

Why would investors continue to pay more and more for homes to flip in these markets? Clearly they’ve observed that renovated single-family homes continue to grow in value in these markets, especially as demand far outstrips supply. There’s a steady market for these flips once they’re renovated and back up for sale. Investors also see undervalued properties where a flip can still make the kind of money investors look for in a real estate investment opportunity.

While investors will have to pay more for properties at the outset, they’ll also stand to make more money as percentage profit is often greater on a higher priced home. There are a few takeaways, city by city, as to why has the median investor purchase price jumped so dramatically in these markets.

Flippers benefit from three types of appreciation

In the current real estate market, flippers benefit from multiple types of appreciation. Collectively, these partially explain why we see investors continued to buy at higher price points:

Instant appreciation

Think of the adage “you make money when you buy” here. Flippers buy lower priced and/or undervalued properties. In this environment, it’s primarily the latter.Even when buying an investment property at a higher price point, investors can still find value. To take advantage of instant appreciation, you don’t have to buy the cheapest house on the market, but you do need to spot value and invest before someone else does. When investors keep buying as prices go up, that’s a sign that they see real estate as undervalued. Identify the undervalued markets and property types by using the quarterly report.

Market appreciation

For flippers, market appreciation is often considered the “icing on the cake.” Something you can’t guarantee, but it’s great at times like this when the market is sizzling hot.

Market appreciation is tied to how the housing market performs, both locally and across the U.S. Investors are benefiting in huge ways from the market appreciation happening right now. The S&P CoreLogic Case-Shiller Home Price Index found that U.S. home prices set a record in September, rising nearly 20% year-over-year. In times like this, flippers don’t mind taking longer to complete a project because they’re gaining equity even as they hold the property. Use the quarterly report to find areas where you can benefit most from market appreciation.

Forced appreciation

Forced appreciation is when investors add value to a property through rehabbing. Using this strategy in tandem with market appreciation and instant appreciation leads to the greatest return on investment. Investors can capitalize on this by making sure to buy homes that cater to their market demographics and preferences. Whether that’s an extra bedroom for an office, an additional kids’ room, or a few hundred extra square feet that will appeal to today’s more home-based lifestyle. These are all trends that the quarterly report dives into, city by city.

Creative ways to compete for properties

The market report gives you insights, but it’s your job to secure properties.

Finding the right investment properties is key to making your real estate investment business a success. Finding creative ways to generate leads and having all avenues open to find available inventory give you a leg up on the competition. Here are a few ways to act creatively when making offers:

  • Be prepared to offer quickly and more aggressively on certain types of homes. Three bedroom, two bathroom homes are considered “easy” flips in most markets due to their popularity. These types of homes are the easiest to sell or rent after a flip. To win these homes, you’ll want to offer early and often.
  • Look for unique properties that can be converted to a more popular home setup. While all the attention is on three-bedroom, two-bathroom homes, a property with potential might catch your eye. Something that can easily be converted into that coveted three-bedroom, two-bath setup, for example or a property with ADU potential.
  • Adjust your offer depending on your exit strategy. It’s important to be able to identify how much work you’ll need to put into properties. Flips generally fall into the following categories: clean and list (surface updates only like light landscaping and touch-up painting), update (interior and exterior painting, kitchen and bath updates), or remodel (knocking down walls, replacing major systems like heating and AC). Have the end in mind before making an offer.

Find your next flip

When you’re ready to start investing in properties to flip, that’s where Sundae comes in handy — offering a vetted marketplace for investment properties and a smooth experience from listing search to closing the transaction. Joining Sundae’s marketplace allows you to make offers on properties you would otherwise not have access to.

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Erin B

Erin Behan is a writer and editor covering real estate investor strategy for Sundae. She's lived in L.A., New York, and Atlanta and currently resides in Portland, Oregon, where she writes and edits for a number of outlets, including WebMD, Farmers Insurance, and Vox Creative. She spends her free time hiking with her two boys, snuggling with her cat, and enjoying the best of the Pacific Northwest.