Flippers Change Strategies in Upturned Dallas-Fort Worth Housing Market

A new report found that 73% of investors surveyed said their business grew from 2021 to 2022, while 70% said they plan to invest in 2023.

DALLAS. As the new year begins, family fins are relatively confident and optimistic, despite issues such as high mortgage rates and low housing stock. Some single-family home remodelers are shifting from a “fix and sell” strategy to a “fix and rent” approach because higher mortgage rates are driving away potential buyers. And inventory shortages are forcing investors to turn to old homes for restoration.

These are some of the key findings from New Western’s Irving-based study of the refurbished and resale residential property market.

The report, titled “The Flip Side: The Outlook for Investing in Residential Real Estate in 2023,” states that 73% of investors surveyed said their business grew from 2021 to 2022, while 70% said they plan to invest in 2023.

In addition, 63% of first-time investors interested in buying in 2023 said interest rates are not too high to deter them from buying homes, as 59% plan to use cash or private money.

According to Kurt Carlton, president and co-founder of New Western, the departure of iBuyers like Zillow and Redfin from the investor market will open up more opportunities for individual investors to purchase recovery homes.

Small investors who leverage their local know-how and fast operations will have a home advantage in 2023 when it comes to finding opportunities in their neighborhoods, Carlton added in an interview with the publication. Dallas Business Magazine.

The survey also showed a growing youth movement in residential real estate investment. About 7% of investors who have previously bought investment property are between the ages of 18 and 29, as are 15% of investors planning to make a purchase for the first time in 2023. And 86% of Gen Z respondents said they were ready to enter the market one day. Mortgage rates are showing signs of stabilization.

“This is a new generation, new ideas and a new way of looking at things that goes beyond the typical 55 to 65 year old real estate investor scenario,” Carlton said.

Carlton shared additional insights regarding the new study, its implications in Dallas and Fort Worth, and how small investors can take advantage of the market to grow their home improvement and rental business in the following interview:

What are the biggest opportunities in the DFW market right now for fixed-rent investors?

We are seeing a large number of returns to fixed rentals. It’s much more balanced. Last year, everything was “fix and flip” (sell). Demand for rentals is definitely on the rise, obviously due to rates. Your investors now have a much more mixed opportunity. If they can’t flip it, they can rent it. They have more flexibility. And you see some areas where it was very frothy – some areas of West Dallas and similar areas – where maybe the house cost $400,000 and you had the only opportunity to buy, renovate and sell it. Now, if you can pick up $300,000 homes in these niche areas, they are suitable for rent. You’ve just really opened the box to buy what will rent, even with high rates and all.

What surprised you about your latest survey results?

What was interesting is that we were expecting a really negative mood. We have 150,000 investors on the platform. We inspect them regularly for our own purposes. And it was just interesting, so we decided to create some material externally based on the responses, and most of the investors who bought last year are interested in continuing in 2023.

What are the biggest opportunities and biggest challenges in the market right now?

Finding inventory will always be a challenge, although it’s now easier. Inventory has doubled in DFW since this time last year. But that doesn’t say much. We’re still in the seller’s market, that’s for sure.

Right now, the biggest opportunity for individual real estate investors is that institutions and iBuyers have given the market back to the little guys. They just brought it back. And even though we are still in the seller’s market, they needed that little easing that was given to us in order to have a more predictable outcome. Now you can find the inventory. Now you can rent inventory. Pricing is favorable to this strategy in many sub-markets currently in DFW that simply did not exist before.

This is primarily because people were so desperate for housing (before the crisis) that there wasn’t much of a gap in who would pay for a dilapidated home versus a quality home. Now the gap is much larger. These distressed houses will stand a little longer. There is a little more room for negotiation. Investors can get favorable prices that will allow them to implement a strategy, whether it is a “fix-and-flip” or a “fix-and-rent”.

What are your home price projections for the coming year, taking into account the DFW?

He is clearly softened. If you look at DFW as a whole, we’ll probably end up last year with house prices rising between 6% and 10% a year. We gave a lot in the second half of the year. At the beginning of the year, it was very difficult for us. Moving forward, things will be very subtle, and this is where you bifurcate the investor market and the traditional market. Investors seem to fit into the cracks in the market. These are opportunities. Despite the fact that stocks have increased, demand has fallen sharply. You’re suppressing most of the offers coming online because people don’t list their homes. And people who are not put up for sale are not buying (another house).

But the investor market has not changed much. People are still inheriting houses that need renovation and should not be in the MLS and need an investor. Life hasn’t changed for emergency housing, so things are still moving. And if the price goes up 5% or down 2% or whatever, investors might have a big enough buying gap to put it into their strategy. They are able to adapt to risk, so they are all right.

We talked about pricing, mortgage rates, supply and demand, challenges and opportunities for home fins. What else is happening in the housing market?

One interesting thing we see is that when we start looking at what has been built in DFW and around the country, a third of the homes ever built are entering this phase right now, when they are between 20 and 40 years old. This means that they start to enter at the point in their life cycle when they have their first major improvement project. The main systems – roof, plumbing, ventilation and air conditioning – will all be a problem for these homes. All those old Fox & Jacobs houses in The Colony built on these (aging) slabs and such. If you only think about DFW housing infrastructure, you are in a phase where you have a tidal wave of home rehab. We’ve got a big boulder that we’re watching through. We expect the peak to be in 2027.

This interview has been edited for brevity and clarity.

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texasstandard.news contributed to this report.

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