Investors Adapt to Capitalize

Needless to say, 2020 threw everyone for a loop. It seemed a year filled with monthly (bad) news, change and the unexpected were the norm.

Changed Opportunities

The first half of 2020 was marked with enormous upheaval, affecting funding options and inventory. In the second half of the year we saw quick adaption of shrewd investors. There were two kinds. One was the small time investor who didn’t want to risk getting stuck with a property, on the other side were large, established investors who were looking for vetted deals.

Proof is in the Pudding (in this case, profit checks)

While many did what many usually do, which is run and hide, some saw the year as any other year in real estate. Investors adjusted their business focus. Some of our members had a better year than ever. Interesting from our point of view is the amount of people in the same cities as those investors who reported to us they couldn’t find any deals. But then this is has always been the case – where the masses only see barren land, a few undeterred, motivated individuals see gold.

Shifting from Long Term to Short Term

The most lucrative shift for our members was from longer term funding for flips that could take months, to shorter term funding using quick-flip and wholesale strategies. Needless to say, risk is related to change, and some changes such as funding rates and inventory availability are simply out of our hands. How these affect opportunity and risk are subjects of another blog post, but the short of it is that we have seen a successful shift to short term flipping.

How lucrative was this shift?

One of our members in Baltimore decided that she didn’t want to risk a 7 month rehab. She was also pressed (like many of us in 2020) for money, living off unemployment with reserves running out. So she decided to enlist the Wealth 212˚ team to explore her options. Offering her deal to their network of thousands of investors, one seemed a particularly good match. End result? Our member made $24,000 on a quick-flip with cash in hand within weeks.

Some Math and Statistics – Calculate Yourself Wealthy, not Poor

Some argue that quick-flips and wholesale deals do not have the kind of profits available in long term rehab projects. On paper this might be true. In reality 70% of flips nationwide do not make money with half of those causing significant financial problems for the investors. Of the remaining 30% the average profit is $17,000 with an average rehab in 2020 (these are nationwide numbers, not ours) taking 14 months. If you look at this profit on a month to month basis, it is more lucrative to get let’s say $2,000 on a wholesale deal, paid within weeks, than $17k in 14 months with a 70% chance of not making any money at all.

What’s Next in 2021

Institutional investors are relying more than ever on “middle men” such as Wealth 212˚ to vet properties and give assurances that people they work with will know what they are doing and will follow through. This will remain the case for many more years. For the average investor this means more opportunity in the short run, as long as they can get on the referral list of those “middle men.”

 

 

“Real Estate is lucrative but expensive. You are going to pay either way. The question is whether you are going to pay a lot or a little”