Three predictions for fix-and-flip real estate investments in 2023

Susan Naftulin is president and co-founder of Rehab Financial Group, LP a private lender in the Philadelphia area.

As the housing market changes in 2023, real estate investors looking to fix and turn around will face both challenges and opportunities. Because return on investment is never fully guaranteed, it is critical to develop a clear plan to handle unexpected market shifts. So, what three factors could affect how you evaluate new investment fix-and-flip opportunities in 2023?

1. There is a dramatic increase in foreclosure activity.

Demand for housing and rent will continue to rise this year, but a potential recession – with rising unemployment – ​​could lead to more foreclosures. As recently reported by ATOM, foreclosure applications are up more than 64% since 2022. One in 4,580 housing units had a foreclosure in November of that year. While activity varies across the country, states with the highest levels of foreclosure are California, Texas and Florida.

The increase in foreclosures will result in more inventory options for those seeking real estate investment opportunities. However, investing in this type of property is best left to experienced investors with proven liquidity as bankruptcies are present a complex buying journey.

2. House rents will continue to rise.

Remote work, rising interest rates, rent increases and changing lifestyles all factor into financial and personal decisions. That’s why renting or buying is more confusing than ever for investors and renters alike.

Mortgage interest rates have nearly doubled in the past year, leading potential homebuyers worry about feasibility of owning. The average purchasing power of someone who previously could afford a $500,000 home with an interest rate of 3% can now only afford a $335,000 home with rates as high as 6%. Overall, the affordability of single-family homes has fallen to levels not seen by the market since 2006.

As a result, potential homebuyers are simply sticking it out for rental properties, even at higher rents. With fewer people entering the home buying market, it can be more difficult for fix-and-flip investors to recoup in an ideal time frame.

3. The housing market will favor the buyer by the end of the year.

While we saw mortgage rates above 7% in the final months of 2022, 44% of economists and housing experts say by the end of 2023, the housing market will shift positively. The talk of lowered mortgage rates by the end of the year will open up more opportunities to invest in real estate, whether flipping or renting. However, the recession chatter has given reasonable pause to less experienced real estate investors without a clear business strategy. Many save their money and sit cautiously on the sidelines to see what happens. If the market shifts in favor of the buyer, the combined factors of demand, increased foreclosure activity and stabilizing margins could open up potential opportunities for all real estate investors.

So what should you do now?

If you’re considering investing in a turnkey property, do your due diligence on areas that offer the maximum potential in 2023. Then find a loan partner that focuses on your interests through a personalized, tailored approach. As you plan your property rehab, keep in mind how the home’s value adjusts. Understanding the value of your home can add significantly to your ability to make a profit when selling or renting if the market works in your favor. Finally, remember that even after you’ve done all the prep work, there’s no guaranteed way to recoup your investment. So make sure you are able to ride out an unpredictable market.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.

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