Flippers need to know how to flip houses in up and down markets so here are some thoughts to keep in mind
Did you know that the national economy affects election outcomes more than any other factor in politics?
While the economy is not usually the hottest debate topic (after all, how many different ways can you say “I’ll mess up the economy less than you will” in a debate?), it is the driving force behind most American ballots.
“For presidents, the economy has historically been one of the key drivers of election wins, traditionally only falling behind war time issues in importance,” wrote Fortune contributor Tovin Lapan last August. Lapan went on to observe that voters tend to credit strong economies to the individual currently in office even if that individual is benefitting from past policies.
If that holds true in 2020, it could be good news for sitting President Donald Trump, who currently is in office during the longest economic expansion in U.S. history. Conventional wisdom states that Trump’s reelection will also be good for the economy and the national financial markets since, so far, Wall Street has responded very favorably to the 45th president.
Conversely, many economists predict that the economy could head south (and quickly) if the democrat candidate, whoever that may be, wins the election, since the democrat platform is increasingly antagonistic toward businesses and wealthy individuals.
What does this all have to do with house-flipping? A lot more than you might think at first. Here are a few things to know:
- In mid-2019, the national rate of house-flipping returned to roughly the same level as it was at the peak of the housing boom.
- CoreLogic reported most current flips are less risky than those transacted a decade ago, “making today’s flippers less likely to cause market volatility if prices decline in the next few years.”
- In general, flippers tend to have larger profit margins today than they did at the peak of the previous housing cycle. In fact, a Wall Street Journal article estimated that 2019 flippers were “more than twice as profitable as the flips made in 2006.”
Basically, things are going pretty well for flippers these days – at least, the flippers who are doing high volumes of deals and have a steady source of solid leads even in today’s competitive markets. That is where the presidential election comes in.
Most flippers are not high volume dealers
Most flippers in the United States are not doing high volumes of deals, nor do they have a steady source of solid leads in competitive markets.
They are doing between one and three flips a year and have only just started working with passive investors in order to fund more deals and get their transaction volume up.
These investors may say things like, “I hope the economy does correct soon so there will finally be some better deals out there,” but they really will not know what hit them if this happens. They do not have enough margin in their deals or a well-planned alternative investing strategy in place in the event that their house suddenly is not worth what they thought it was or the buying population starts buying smaller, less luxurious houses because Wall Street is going haywire and it is making everyone nervous.
While you might make the argument that good real estate investors will stay in business no matter who wins, you should also start considering which of the real estate investors managing your investments fall into that “good” category.
Once the democrat candidate is selected and things get really nasty, the nervous energy associated with any presidential election is going to hit unprecedented heights in this one. When that happens, the buying public is going to take a step back and wait to see what happens or, at a minimum, some portion of this population will start buying smaller or opting to rent instead of buy while they wait on the election outcome.
In the meantime, where will your capital be? Will it be tied up in a half-finished flip, or generating returns for you in a well-managed flip project with plenty of creative, innovative strategies in place to react to any economy?
I know where mine will be, because I’m not a fan of uncertainty either.