How to Win in Today’s Fix & Flip Market
What Today’s Buyers and Renters are Looking For
By Jamie Rey-Hipolito
Fix-and-flip investors have been faced with more than a few challenges over the past year. From the rising cost of materials to the availability of inventory, these compounding stressors on an investor’s bottom line have caused some to scale back or pause operations completely. However, I am in the camp that the fix-and-flip market is ripe for opportunity if investors can get a little creative with their approach.
I have been fortunate to work in this industry for more than 20 years, cutting my teeth in real estate operations and asset management in the single-family, multifamily and iBuyer asset management space, and have witnessed a lot of change in that time. I have worked for large investors with thousands of properties in their portfolios and have learned a thing or two about what works and what doesn’t when it comes to maintaining profitability on a fix-and-flip project.
While much has changed, one thing that has remained the same is the importance of knowing your customer. Putting yourself in a homebuyer or renter’s shoes, doing your research and understanding their needs is crucial as you make key decisions about your flips, considering what is going to generate the largest return on your investment (hint: it is not extensive landscaping or fancy light fixtures). And, as the younger generations — Gen Z and millennials — reach their peak homebuying age, considering generational differences is not a bad idea either.
The market is shifting
With mortgage rates increasing, and inventory ticking back up steadily, we can expect that the bidding wars we witnessed in the early days of the pandemic — and homes going for two or three times the asking price — is not going to be as prevalent moving forward. Additionally, waiving inspections and contingencies is another thing that is going to become less and less common. As experts watch the market closely, many feel we are returning to more of a pre-pandemic housing market.
That is not to say, however, that the market is not still “hot,” but we must not rest on our laurels and rely solely on the hot market driving purchases any longer. Going “back to basics,” while still keeping-in-mind emerging housing trends and consumer desires, is always a good idea.
Evolving desires
Investors today must be mindful of just how much consumers’ lives have changed since the onset of the COVID-19 pandemic. How we live, work and play has been forever altered. That means doing your research and knowing what today’s buyers and renters are looking for in a home is more important than ever. Young people have especially strong feelings about what they are looking for in a home, which is driving many of the trends we are seeing today as investors and builders look to adapt.
Speaking to some of these desires, my company, ServiceLink, recently surveyed 1,000 recent homebuyers from across the U.S. to get their pulse on the state of homebuying today and gauge how they were adapting to the white-hot real estate market. What we found, particularly among millennial and Gen Z respondents, was that they remain optimistic about purchasing a home this year and are increasingly looking for more space to work and play as they continue to work remotely.
For example, 26% of Gen Z/millennial respondents stated they were likely to purchase a new home this year; 42% stated their reason for buying a new home was to upsize from their current one; and 17% stated they bought a new home for more space to work remotely.
Speaking to the rental audience, they are looking for much of the same, and still desire amenities like walking paths, on-site pools and clubhouses for SFR communities — all the same things they may have enjoyed with apartment living. Proximity to the office is much less important to consumers as it was three or more years ago — as evidenced by some of the recent migratory trends from city hubs to more rural areas — and while some are returning to the office full-time, a hybrid approach to working is likely here to stay for many.
These trends will continue to impact what buyers and renters are looking for in their next home.
Making sound decisions that appeal to younger buyers and renters
Here are six things today’s buyers and renters are looking for, that every fix-and-flipper should keep-in-mind on their next project:
A touch of automation
While it is important not to go overboard with tech upgrades — as technology can become obsolete when new products are rolled out — there are smaller upgrades you can make to a property that will be attractive to new buyers or renters. For example, motion sensors for lighting, hands free faucets, automated or smart alarms, door locks and climate control systems are all upgrades to consider that will appeal to consumers today, but will not break the bank.
Keep it neutral
Choosing a neutral color palette is always a safe bet for any fix-and-flip project. This allows homebuyers or renters to put their own personal touch on a property when they move in — if desired — and helps them better visualize themselves in the space. Keeping it neutral and resisting the urge to lean into your own design preferences can help your property appeal to the masses instead of a small handful who appreciate your artistic flare.
Think twice before opening up a floor plan
While open floor plans have been all the rage for the past few years, the appeal may be waning for buyers and renters who are working from home and need dedicated sections of their home to double as offices. There is another bright side to this waning interest in open concept living, too: it is a cost saver, and investors and builders are not having to deal with the permitting issues that knocking down walls may bring either. Win/win.
Be open to alternatives
Because materials are now harder to come by, make sure you have a contingency plan and stick to your budget. You may not be able to get the kitchen cabinets you want or the tile you had picked out for the master bath. Being flexible, and open to your second, third or fourth choice, will help keep the project moving and limit your disappointment.
Be strategic about where you are spending your money
With the high cost of materials today, sticking to your budget is more important than ever. You want to make sure you have enough money to deal with any unforeseen issues with the home mold, structural, water issues, etc. – and blowing your budget on the fancy tile is not going to help your cause. Make sure you are spending where you need to in order to get the desired ROI you are looking for. If you can cut costs in other areas that won’t see as much as a return — like choosing builder-grade lighting or luxury vinyl flooring over hardwood — then opt to do that.
Clean, safe, functional as the barometer
That is what buyers and renters are looking for — full-stop. While it may be enticing to infuse your own personality and style into a flip, remember — you are trying to appeal to the masses. Folks will put their personal touch on the home when they move in, but from my experience, a clean, safe, functional home beats an aesthetically pleasing (but, perhaps, unsafe) home any day.
To learn more about ServiceLink’s single-family rental offerings, visit svclnk.com/investors.
