The Science of Flipping - Rents Hit An All Time High

Starting point is 00:00:00 Keep business going as usual. Just make sure you're not being a one trick pony, right? Make sure you're underwriting it. Even if you're a wholesaler, make sure you're underwriting it so that it's not just meant for the fix and flipper, that you could have a great rental property on your hands. You can be more aggressive with that offer. Yo, yo, what is up? What is up, everybody? Welcome back to the Science Flipping Podcast. I'm your host, Justin Colby, and the real estate market is still on fire. As I sit here and record this podcast here in April 2022, nothing seems to be slowing this bad boy down, not even higher interest rates. So what do I mean by that? Because some of you guys may be feeling as if it is slowing down. Well, the reports are out about what is happening to the rental market. There are several different articles that I'll link here that are talking about how the rental

Starting point is 00:01:15 market is almost impossible to find a home because the actual national average increased roughly 20% over the last two years since COVID. In fact, cities like Miami has actually increased 57% in rental prices since one year ago. Now, Miami, in my opinion, is just right place, right time. Obviously, the governor is making some major moves, really keeping the travel ability and tourism high here in Miami, even through COVID. And I think that's what really sparked this. But here's the deal, guys. You need to be a well-rounded real estate investor. I tell you guys this all the time. You can't just be a one-trick pony. Too many people right now are focusing on higher interest rates and what that's going to do to the resale market. Now, if you are a fix and flipper,

Starting point is 00:02:11 it may have some impact, especially if you are trying to do projections, right? Or you're trying to, you know, guess that you can get an extra 15 or $20,000 on top of the price that really it should be listed at, right? Just to see if you can buy the home. This is a cautionary tale that I can give you about myself. When we were doing so many flips, there were times that we would buy a home on a projection that we can make an extra $10,000 or $15,000, even though the comps didn't actually support that because of how hot the market was, right? And so that's called speculating. That's a very dangerous play. However, over the last two or three years, I've had plenty of friends, including myself, make obscene amount of monies rehab flipping now we're all concerned about

Starting point is 00:03:05 you know where the interest rates are going and what I will tell you is the rental rates are increasing way faster than the appreciation of homes so for someone like myself in especially in the middle of the country where I tend to buy rentals I'm really looking as someone who I'm going to wholesale flip or keep it in my own portfolio every time I look at a property. If I were doing a heavy business in Miami, obviously rents make a whole lot of sense, but Miami actually also has had the highest appreciation value across the country of any city period over the last same two years. So it really does boil down to math. What I want to tell you is kind of how I look at all of this,

Starting point is 00:03:53 right? Rather than trying to figure out what do we do now? Maybe interest rates are going to make home sales for flips not sell as fast. We might not make as much money and all the other things that people are going to start worrying about. Well, here's what I want to advise. Don't just look at each opportunity in one lens. If you're a fix and flipper, don't just look at it as a fix and flip. If you're a wholesaler, don't just look at it as a fix and flip. One thing I'm telling my team that handles roughly 30 to 40 new leads each and every week. Each person has 30 to 40 new leads each and every week. One thing I tell them is we can't just underwrite to a fix and flipper. Although it is easier to come up with an offer based around the 80% of ARV formula and minus rehab, minus wholesale fee, it's easier to underwrite that. It's not always

Starting point is 00:04:47 what our buyer is going to be buying right now. We also are selling to people who are looking to keep it in a rental portfolio. And so then it just becomes the formula of usually most people will buy it as long as it maintains the 1% rent ratio, meaning if they're all in for $150,000, they would like it to rent for roughly $1,500. The other thing will be 75% to 80% of ARV. They would want to be all in at roughly 75% of ARV. So if it was $200,000, they would be roughly into it for $150,000 and they can get all their money back out. That's ideally where they want to be. Or $160, they would be roughly, you know, into it for 150 and they can get all their money back out, right? That's ideally where they want to be, right? Or 160,000 would be 80%. One suggestion, as we are going through some changes, I guess you should say, is keep business going as usual.

Starting point is 00:05:38 Just make sure you're not being a one trick pony, right? Make sure you're underwriting it. Even if you're a wholesaler, make sure you're underwriting it. Even if you're a wholesaler, make sure you're underwriting it so that it's not just meant for the fix and flipper, that you could have a great rental property on your hands. You can be more aggressive with that offer, right? So home prices are continuing to rise. Interest rates are continuing to rise. Rents are continuing to rise. So all of this is happening all at the very same time. There are reports out right now that homes are taking price cuts from the MLS. People are not getting that, you know, the sky is the ceiling in terms of, what you can list it for. The sky is the ceiling. You don't have a limit to what you can list it for off the sky is a ceiling. Like you don't have a, you know, limit to what you can list it for. People are starting to have a little bit more

Starting point is 00:06:28 of that reality check there. And so that's actually just a good thing. Doesn't mean there's going to be a great reset yet. That is the big key word right now is this great big reset. Now, while I'm very aware of where inflation is at and it's at north of 8% right now, the housing markets aren't feeling it as of yet. Now, the loan markets, loan brokers, things of that, I do believe there's been a lot of upheaval there because of so many people were relying on refis, right? Well, when your interest rates are increasing at the pace that they are increasing, it makes it very difficult for loan brokers, lenders to do refis, right? People don't want to, right? Why would anybody?

Starting point is 00:07:11 So that part I can understand. But guys, this is not a time to be worried about it. I'm just as bullish of the real estate market as I always have been. Again, if you just look at so many other articles, I'm constantly reading articles on the Insider or Realtor.com or Wall Street Journal. I'm always looking at real estate and what's happening within real estate. And I promise you, the big boys, like the real big boys, Blackstone just went and raised even more money. They're just coming in heavier. They see it.

Starting point is 00:07:40 They understand there's a value of land. The age-old saying, they're not going to keep making more land, so they keep buying real They understand there's a value of land, right? The age old saying they're not going to keep making more land. So they keep buying real estate. It's a very real thing. So I just want to let you guys know, don't worry about this. Rents are increasing faster as a moment in time than appreciation, which means the rental market can be great. Here's my advice. Stay in markets that are 30% under median. Medium is roughly 380,000. You'll see reports of about 400, but 380,000. You want to be roughly 30% less than that. If you can do that, you know that that market has a way to appreciate. And then if you can get in a market that can appreciate, such as

Starting point is 00:08:20 I'm in Oklahoma City and Tulsa, then you can actually start to see equity. Even if the market does roll backwards a little bit, the city itself has a room to grow in value. And that's the secret sauce for me is I try to stay under that 30%. Right. And if you do that, then I'll tell you, keep buying rentals. Now, back to the point of does the interest rates stop the value of that rental because instead of getting a 5%, you're getting six and a half. It's just math. Do the math. If you buy it right, then it won't matter. And then later on down the road, you can just refi. Not every rental needs to be cutting big checks to your pocket every single month. Make sure it's a good buy at the right price. And if

Starting point is 00:09:05 you can buy 10 properties that all make you $200 a month, that's great. Because then over time, you're going to be getting your equity, you're going to be able to refi, etc. So I'm still very bullish. I hope this helps. I hope you understand how I'm thinking. If you have not yet given me a five-star review on iTunes, please go give me a five-star review. Also, go subscribe. YouTube.com forward slash Justin Colby. I drop five videos a week, and I'm going to be going live even more frequently right here on YouTube.com. I appreciate you all. Have a blessed week.

Starting point is 00:09:39 Talk to you soon. Peace. peace

The Science of Flipping - Rents Hit An All Time High

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.