Executive on a sector that's garnering plenty of attention
Like the wider US housing market, the fix-and-flip space faced its fair share of challenges in 2023 – but its outlook has remained solid throughout the year to date as investors continue to eye renovation opportunities.
Despite some turbulence in the sector, real estate brokerage New Western said in a report at the end of last year that a banner era for fix-and-flip could be just around the corner, identifying up to 24 million homes as ripe for renovation in the years ahead.
The so-called “Great Renovation,” the company said, would allow plenty of solopreneurs and local small businesses to tackle major repair and renovation work and deepen the potential for the fix-and-flip space to grow substantially by 2027.
Market remains strong despite wider lending turbulence
Lenders in the sector are viewing the current market with optimism. Alex Bogumil (pictured top), fund manager with Capital Fundings LLC., told Mortgage Professional America that recent months had been marked by healthy activity with originations in the space outpacing general market volume in many cases.
That’s despite some borrower caution in the overall market – with a variety of trends helping spur robust fix-and-flip activity. “There’s a little trepidation about what’s going on in the overall market, but our market has been really, really strong. There’s probably several reasons, but it’s just kind of the popularity of the fix-and-flip [space] over 10 years of seeing it on TV. A lot of people have gotten into the business.”
In Capital Fundings’ Florida market, fix-and-flip activity is especially strong among individuals coming into the state from elsewhere – Colombia, Venezuela, Puerto Rico, and Mexico, for instance – with prior experience working on other people’s houses and who are eyeing investment opportunities of their own.
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The state’s market is well primed for further growth in the fix-and-flip space, particularly with its property types often suited for renovation. “Florida’s really set up well for these investment properties,” Bogumil said. “There’s a lot of neighborhoods with 1950s-to-1980s-built houses, block houses, that are easy investment-type properties. And then the weather’s favorable.
“You can work year-round on a house. So there’s a lot of favorable variables that contribute to our market here. Everything’s been pretty strong on the fix-and-flip side.”
What’s in store for the rest of the year?
Despite its resilience, prospects for the space for the rest of the year remain closely tied to interest rates and the Federal Reserve’s plans for lowering its own key rate.
An uptick in the retail market could light a fire under fix-and-flip investors, Bogumil said – but a gradual easing of the Fed rate, rather than a dramatic dip, would likely mark the “most beneficial” outcome for that space.
Until then, a degree of bumpiness is to be expected. “I think it’s going to be more of the same: a little choppy, some people nervous,” he said. “I call my top borrowers and I ask them what they’re doing and how the market’s looking, and then I call a lot of realtor friends that do a lot of business – and it’s week by week.
“One week it’s, ‘I think it’s slowing down,’ and then the next it’s, ‘It’s on fire right now.’ So I think it’s going to be more of that… A little uncertainty, and hopefully it just keeps going.”
As attention toward the fix-and-flip space intensifies, institutional lenders and Wall Street are also beginning to show greater interest in the sector. That’s a trend Bogumil said has been steadily growing, and one he said will require current fix-and-flip lenders to double down on the strength of their current offering and value proposition for investors.
The space “is seeing a big change as far as some of the national lenders really dominating and becoming a major force in what used to be a pretty segmented industry,” he said. “I think that’s going to be the major shift and smaller- to medium-sized lenders [are] really going to have to find ways to provide borrowers extra value to compete with these institutionally-backed national competitors.”
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