New Year… New Plan?

The great thing about being in real estate is that it always changes, keeps you interested and forces you to adapt to the ever changing market. At the same time, these exact things are what keeps many people from becoming real estate investors. Each year you should look back at the previous year’s performance and take note of what made you the most profit. Once the most profitable part of your business is identified, it is time to figure out if the market is going to permit that part of the business to perform the same for one more year.

Last year, 2014, was an amazing year for anyone in real estate. Agents, wholesaler, investors, bird dogs, etc. were all making a killing. Agents listed a home and it was immediately in “highest and best.” Wholesalers were selling properties as high as 90% LTV. Investors were able to sell any renovation project they listed even if the workmanship was not the best. Our workmanship surpassed most competitors and caused our homes to sell in single digit days on market. I refused to get involved in all the hype and stuck to my criteria. In the end, there were many very successful investors. My partners and I bought, fixed, and sold more properties this year than previous years. In 2015 we will continue to buy, fix and sell. Not because it worked in 2014 but because in December 2014 our housing inventory reached a record low 2.5 month supply. As long as our market housing inventory stays low, buying, fixing and selling should be a revenue stream in your real estate business. According to the National Association of Realtors, “the national inventory of single-family homes is 5.1 months of supply.” This inventory level still justifies flipping homes in most markets. Once the market you are in reaches a constant 6 month supply or higher you may want to start looking into holding/renting in the near future.

Obviously, housing inventory is just one of many variables that need to be considered before executing a real estate business but an important one. Another item to consider is lending. For example, FHA reinstated their anti-flipping policy, this rule prohibits FHA borrowers from purchasing properties that had a title transfer within the last 90 days. This is an old rule that FHA had previously waived during the recession but decided to bring back this year. Are there ways around it, YES! Can you still close an FHA loan before 90 days, YES! However, in order to accomplish this you must have known that this rule was being enforced again and know how to properly prepare for it if an FHA buyer wants to purchase your investment property. There are conventional buyers but with the talked about upcoming reduced FHA premium, first time home buyer programs, and lower cash to close you would be losing a nice size pool of buyers for 90 days. For larger projects this is not an issue since it will take that long to renovate but still good information to know. The key is to stay informed.

The first month of the year is pretty much behind us. While preparing business taxes go ahead and audit your business to see which part brought in the most profit. Now ask yourself if it can be done again this year. Regardless of which part of the business it was that created the most revenue, I bet it will continue to be profitable if it continues to be a win-win situation.