Market Conditions: Are Flippers and Private Equity Pushing Up Chicago Prices?

One thing that’s different about this housing market versus the 2005-2006 frenzy is that we never used to mention “private equity” and “home buying” in the same sentence before.

But now that is common place.

The Chicago Tribune reports that the number of flips in the Chicago area doubled in the first nine months of the year.

Local investors attribute the heightened activity to the local housing market’s ongoing recovery and the imbalance between consumer demand for move-in ready homes and available inventory. That is driving up prices as bidding wars ensue, first among investors. Then, the rehabbed homes in sought-after neighborhoods are the subject of another bidding war, this time among consumers, which means greater profits for flippers.

A total of 2,235 single-family homes were sold and then resold within six months in the greater Chicago area between January and September, according to a report by RealtyTrac. That compares with 1,086 homes in the year-ago period.

In the third quarter alone, investors flipped 562 homes, a 28 percent increase from a year ago but down 15 percent from the second quarter. On average, home flippers made a gross profit of $85,814 in the third quarter, a 33 percent uptick from a year ago, making the Chicago area the 21st best market for flippers, RealtyTrac found.

“There’s definitely room for growth,” said Peter Menachem, chief operating officer of SNL Realty LLC, a company that will handle as many as 80 houses this year, compared with 63 last year. “People like a turnkey house.”
But are these flippers or rehabbers?

My definition of “flipper” is someone who does NOTHING to the property and resells it weeks/months later for a higher price. We saw plenty of this during the bubble, especially in condos.

Rehabbers buy a property, put money into it, and THEN get rid of it for a profit.

Either way, investor buyers are facing heated competition from “hedge funds” (aka private equity funds.)

Competition for properties remains fierce, as some investors snap up properties in desirable markets to sell to consumers, and other investors buy homes and reposition them as single-family rentals. There’s still a lot of money to be made, but it’s not a sector for the hobbyists, according to Sherwin Yellen, a longtime Chicago real estate investor.

“The hedge funds are bidding out the guys like me, the independents, 3-to-1,” Yellen said. “It’s very hard to buy.”

Is it even worth it to try and buy the foreclosure/short sale in some neighborhoods these days?

Can a “regular” investor compete against the big boys?

Home flipping gets fierce [Chicago Tribune, Mary Ellen Podmolik, Oct 16, 2013]

9 Responses to “Market Conditions: Are Flippers and Private Equity Pushing Up Chicago Prices?”

  1. “Can a “regular” investor compete against the big boys?”

    No.

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  2. I don’t think foreclosures have been very good deals for a long time – unless the place needs a lot of work. And short sales are becoming less and less good deals. And I don’t think it’s because of the big money. I think the banks on the sell side are just getting more demanding.

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  3. Speaking of market trends…did you hear at that Mr. Shiller (of Case-Shiller) won the Nobel Economics Prize?

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  4. Yes. And the other 2 guys were from the U of C. I was really disappointed. Could not believe I got passed over again.

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  5. The Prize committee is inherently biased towards academia. It’s practically impossible for a guy like me that’s self-taught himself economics reading internet forums to be win the prize, or even be nominated; because all the awards go to academics, specially those at U of C, that bastion of geekiness that it is.

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  6. ” the Nobel Economics Prize”

    It’s the Sveriges Riksbank Prize in Economic Sciences. It’s not a real Nobel Prize.

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  7. also, I’ll be deep in the cold, cold ground before I recognize Missourah as a state.

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  8. “The Prize committee is inherently biased towards academia. It’s practically impossible for a guy like me that’s self-taught himself economics reading internet forums to be win the prize, or even be nominated; ”

    good stuff HD!

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  9. Hilarious HD!
    Where is that darn thumbs up button?

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