Finding Hidden Real Estate Investment Opportunities in the Current Home Market

Real Estate Client

The key strategy right now may be to sell for real estate investors. 

However, with rising interest rates, decreased inventory, the post-pandemic shadow that has made people flee cities for suburbs and rural areas, and dealing with tenant complaints, municipal, state, and federal regulations toward renter laws have made investment properties unfavorable. 

Another unpopular trend with real estate investing is hiking interest rates, which is seen to be continuing for the near and long term. 

Add to those woes the dissipating commercial real estate market, and real estate investors need to rethink their investment portfolios and strategies. 

Commercial real estate is not a good investment at this time due in no small part to the acceleration of decentralized work-stations, whether remote or in some hybrid model. 

In fact, since late 2021, over 45% of workers report that they perform their jobs either fully remote or in some hybrid model. Moreover, over 90% of respondents to a Gallup poll regarding the changing workplace report want a permanent version of the hybrid, remote work style. 

These trends seem to be accelerating and becoming fixtures in the new workplace. Those numbers and that trend mean less need for office space, workrooms, and other forms of commercial real estate. 

Many are turning to the fix-and-flip strategy as an investment opportunity for savvy investors in real estate rather than park your money in holding properties and commercial spaces. 

What Is Fix-And-Flip In Real Estate

Fix-and-flip is a strategy that includes buying a residential home that is undervalued, distressed, or in short-sale. 

Buying below-market properties give the flipper, as they are known, an opportunity to put some money into renovations and upgrades, then turn around quickly and resell the property above market value for a quick profit. 

As easy as it sounds, the process can be pretty challenging, and the risk of loss is real rather than profiting from a fix-and-flip. 

Often, people who lack carpentry skills or know how to get materials needed for upgrading at a reasonable price can end up overspending on the home’s improvements, lowering the profit margin on the sale. 

One area where fix-and-flippers tend to have problems is valuing the remodeling being done on the home and not understanding how the money put into the property doesn’t translate to closing sale prices directly. 

For example, if a flipper puts $20,000 into remodeling the home, it doesn’t automatically increase the home’s value by $20,000 or more. In fact, the type of upgrades and remodeling were chosen to do is as much a predictor of increased property value as is the market trends. 

Remodeling the kitchen and baths have more potential upside with increasing the return on the home’s investment than a pool would. The reasons are that kitchens and baths can be upgraded fairly reasonably, whereas a pool requires significant capital and significantly lowers the number of potential buyers. 

Another area to guarantee a return on your investment is more significant remodeling, such as adding a room or second-story. The reason is that by expanding the overall square footage of the home, you’re creating more space for families, which can be very attractive to buyers seeking to have more space in their homes. 

Flippers also tend to overvalue the market possibilities, especially in a boom climate such as we are experiencing with real estate right now. 

Add in material costs, labor costs, permitting fees, and other costs associated with flipping a home, and the margins can be much smaller than projected. 

That’s one area where an experienced residential real estate agent can assist the casual flipper. 

Also, for real estate investors, using an agent to help broker and facilitate the deal is crucial toward seeing profits meet expectations. 

For example, Samuel Kooris Brooklyn area real estate agent understands the market trends of finding distressed properties and can lend advice toward financing and contracting options to help the intelligent investor make a realistic projection of the types of profits on each sale. 

While traditional investment vehicles for people in real estate are changing and evolving, from commercial and rentals, there is one other way for the casual investor to make a decent profit. Still, it takes a dedicated strategy to succeed. 

Fix-and-flip homes are a good strategy for today’s investors, especially as housing inventory continues to be low, causing appreciation to continue at its skyward pace.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.