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]