Mom-and-pop house flippers are expressing confidence and optimism as they step into the new year, despite facing challenges such as elevated mortgage rates and a shortage of housing inventory. A recent survey conducted by New Western, an Irving-based marketplace for fix-and-flip residential properties, shed light on several trends in the residential real estate market.
The report, titled “The Flip Side: An Outlook for Residential Real Estate Investing in 2023,” revealed that 73% of surveyed investors experienced business growth from 2021 to 2022, with 70% expressing intentions to continue investing in 2023. Notably, some single-family home rehabbers are adjusting their strategies in response to higher mortgage rates, transitioning from a fix-and-sell approach to a fix-and-rent strategy due to the impact on potential homebuyers.
The departure of iBuyers like Zillow and Redfin from the investor market is seen as an opportunity for individual investors to seize properties for rehabilitation. According to Kurt Carlton, President and Co-Founder of New Western, small investors with local expertise and agile operations are poised to have an advantage in 2023, particularly in identifying opportunities within their neighborhoods.
A noteworthy shift highlighted in the survey is the emergence of a youth movement in residential real estate investment. About 7% of investors who previously purchased investment properties are aged 18 to 29, and 15% of those looking to make their first investment in 2023 fall within the same age group. Gen Z respondents, comprising 86% of the surveyed youth, expressed readiness to enter the market once mortgage rates stabilize.
Despite concerns about challenges in the market, such as high mortgage rates and a limited housing supply, the survey results indicate a surprisingly positive sentiment among investors. Carlton emphasized that opportunities for small investors have expanded, thanks to the withdrawal of institutions and iBuyers from the market. With an increase in housing inventory in the Dallas-Fort Worth (DFW) area, investors now have more flexibility, and the fix-and-rent strategy is gaining popularity.
When discussing the current state of the DFW market, Carlton noted that finding inventory remains a challenge, despite a doubling of inventory since the previous year. However, the increased inventory has allowed for more negotiation and favorable pricing for distressed houses, supporting both fix-and-flip and fix-and-rent strategies. Carlton anticipates nuanced changes in home prices in the year ahead, with investors adapting to market dynamics.
In addition to pricing and inventory, Carlton highlighted an interesting trend in the housing market – a significant portion of homes, around one-third, are entering a phase where they are 20 to 40 years old. This aging segment is expected to undergo major improvement projects, including renovations to essential systems such as roofs, plumbing, and HVAC. Carlton anticipates a peak in home rehab projects around 2027, particularly for houses built in the 20 to 40-year age range.
In conclusion, the survey results suggest that while challenges persist, mom-and-pop house flippers remain resilient and adaptable. The evolving landscape, including the influx of youth into the market and the shift towards fix-and-rent strategies, presents opportunities for small investors to navigate the market successfully in 2023.
