Investors Bullish on Housing Once Again

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The tide may have finally turned for real estate investing and the housing market. After carefully tracking sentiment among small investors, Rick Sharga’s team at CJ Patrick Company has seen a BIG boost in optimism over the last quarter. It seems that betting on the housing market is back as improving investor sentiment and confidence pushes more and more people to go after rental property investing and house flipping. But which strategies will have the most explosive growth?

We sat down to break the story with Rick on the newest Investor Sentiment Survey, what investors are feeling the most bullish about in the 2024 housing market, and the biggest concern investors have on their minds. And the data Rick shares isn’t just shown in the survey—it’s mirroring today’s market conditions. In James’ market alone, investor demand has quadrupled recently, showing a STRONG resurgence in a specific type of real estate investing.

We’ll walk through the new investor sentiment numbers, why house flipping activity could explode over the next year, one big risk hurting rental property investors, and where investing activity is pooling across the nation.

Dave:
Hey everyone. Welcome to On the Market. I’m your host, Dave Meyer. Today joined by James Dainard. Thank you for joining me today, James. It is a very exciting day for me. My book comes out today.

James Dainard:
And you know what, I just got it today. I opened it up.

Dave:
And?

James Dainard:
Well, I got to read it first.

Dave:
I can’t believe you didn’t cancel this recording to spend all day reading my book?

James Dainard:
Actually, I would like you to read it out loud to me at night, if we can arrange that time.

Dave:
That’s actually what this podcast is going to be. I’m just going to read the entire book in real time. And 14 hours later, you’ll all have the full book.

James Dainard:
Well, it’s freezing across America, so you could do a fire side chat and get things warmed up.

Dave:
Yeah, exactly.

James Dainard:
But this is a perfect book for what we’re diving into. We’re going to talk to Rick, who’s going to go over investor sentiment and how things are changing and how the investment’s different. And for those who don’t know, Dave’s book really helps you give clarity in what you’re trying to do and trying to invest, and it is so key as an investor to have that clarity, especially in today’s market.

Dave:
Well, thanks man. I appreciate that. Yeah. The book, if you haven’t heard about it, I’ll just give a quick plug while we’re here. But it’s called Start With Strategy, and it’s basically helps investors, whether you’re just starting or you have experience, come up with your own strategy. So if you think the market’s going to be bad or good or you have a little money or a lot of money, whatever it is, you can come up with a strategy that works for you. And this book is basically a step-by-step process to help you figure out what approach to real estate is going to be best for you and your long-term goals.
If you want to check it out, you can find it at biggerpockets.com/strategybook. And if you’re listening to this on the day it comes out on January 18th, this is the last day that you get all the pre-order bonuses. So there’s actually this awesome planner. It’s going to be sold separately in the future, but it’s basically a whole workbook that helps you build the business plan for real estate investors. And you get that for free if you order it today by going to biggerpockets.com/strategybook. All right, enough with me pitching my book, we do have a real podcast episode for you today, and it’s a good one. We have Rick Sharga, he’s been on the podcast a couple of times. Rick is the CEO of CJ Patrick and him and his company put together an investor sentiment survey that as far as I know, is really one of a kind. I haven’t seen any other data that really measures how regular, relatively small to medium size residential real estate investors feel about the housing market. So today we’re going to jump into that.
James, how do you use or think about investor sentiment and how does that data inform your strategy?

James Dainard:
Investor sentiment actually makes a huge difference in the deals that we’re doing today. As investors, we’ve been buying since 2005, so we’ve been through the market crash to 2008. We saw the market slow down in 2016, and we’ve seen the market change rapidly over a duration and also a slow change where we’ve made the most amount of money and wealth as far as buying properties, keeping them and renovating them, is when there’s the most amount of fear in the market. And sentiment creates bigger margins. When people are spooked, there’s less competition, you get better profits, better walk-in margins, better cash flow, typically over time or better long-term growth. It’s very important and it sounds weird, but the more spooked people are, the better opportunities that there are out there.

Dave:
That’s so true, and I think you’ll hear a little bit about that. We did get an opportunity to read Rick’s report before we interview him, but I think there’s some really interesting nuggets in there about sentiment and how it actually has this interesting relationship to profit, and it’s probably not what you think. So make sure to listen to the entire interview with Rick because there are some very actionable steps for you and your strategy in 2024. We are going to take a quick break and then we’ll be back with Rick Sharga, CEO of CJ Patrick. Rick Sharga, welcome back to On the Market. Thanks for joining us once again.

Rick:
Always a pleasure, Dave. Thanks for having me.

Dave:
As a reminder to our audience, Rick has been on the show a couple of times. Most recently he joined us, I think it was episode 131 back in August to talk about a new investor sentiment survey that he and his company CJ Patrick have developed. And today we’re going to dig into a few things, but we’re going to start with a follow-up on that survey to see how investor sentiment has evolved since we last spoke to Rick about six months ago. So Rick, before you spill the beans about how people are feeling, can you just remind people about the scope of the survey, what data you’re collecting and who you’re talking to?

Rick:
Yeah. We reach out nationally to investors who do fix and flip investing, who do rental property investing, who do wholesaling, and we collect a few hundred responses from across the country. And I think it’s probably pretty reflective of your audience, Dave, in that the overwhelming majority of these investors are people who buy between five and 10 properties a year, which I think really is what most of the investment market is made up of anyway. But yeah, it’s an online survey. This is our third of the quarterly surveys that we do, and that’s really about what this is.

Dave:
So Rick, can you tell us just examples of questions that you’re asking investors from quarter to quarter?

Rick:
Yeah. We asked them what the market is like for investing today. We ask them for their outlook, how they feel the market’s going to be for investing six months out. We ask them what the biggest challenges they’re facing are, what their price expectations are. We ask them some pointed questions like whether or not they expect the country to go into a recession. We ask them where they do their investing, how many properties they invest, what type of investing they do, whether they’re a flipper or a rental property owner. So those are the types of questions, and every now and then we’ll throw in a topical question if there’s something going on in the market that seems a little bit new or unusual. For example, in this most recent survey, we asked them some questions about insurance, which hadn’t been a topic we’d covered before. But we’d heard some rumblings from the industry that insurance was becoming more and more of an issue in the survey results certainly bore that out.

Dave:
Okay. Great. Well, there’s a lot to unpack there. I want to hear about this insurance. I’ve been hearing a lot about that as well. But let’s just start with investor sentiment. How are people feeling about the market? So can you just rephrase what the question is and how people feel generally right now?

Rick:
Yeah. We ask what the environment for residential real estate investing is compared to a year ago. So that’s really where we start things off. And investors, I believe have a tendency to be somewhat optimistic. So in this case, about 40% said it was either better or much better than it was a year ago. About 27% said it was about the same, and a little over 33% said it was worse than it was a year ago. So it runs the gamut in terms of the opinion of investors, but slightly more felt it was better than the other categories combined.

James Dainard:
I love this survey because it is taking real pulses from people that are in the market. It is not just data, it’s not just predictions, it’s what’s going on and what are you feeling as an investor? And I think we’ve seen a big shift over the last 12 months and the perception from investors. And part of that is just the interest rates have slowed down on the hiking. So this 2008 doom and gloom panic that’s in the back of everybody’s minds is starting to cool down. And then also the stats are a little bit weird out there in the sale market. We’re seeing low sales, yes, things aren’t really… Sometimes it’s taking a little bit longer to sell properties, but at the end of the day, what investors especially fix and flip they’re selling a really good product that’s renovated, it’s nice, people want it. Even if it’s at the upper echelon, the price point, people still need it and they want it and it’s still selling well.
So even if the data and the stats are a little bit different in the market, what we’re working in, we’re feeling a lot differently and it’s really changed everything. And especially with the Fed saying they’re going to slow down the rate hikes, really the mentality investors has changed a lot in the last 30 days. We’re seeing very high demand.

Rick:
And unfortunately our survey isn’t quite as current as that current dip in interest rates. But your point is extremely valid. If we go back to when we did the spring survey, that was coming out of a time when inventory was at an all time low, interest rates were the highest they’d been in 40 years. And not surprisingly, investor sentiment was lower. We’ve actually gone from a 30% positive number to 40% in the subsequent two quarters. And I think that is an indication that market conditions are improving for investors. The other thing that I think is probably really germane here is that there’s a very different mentality among fix and flip investors than there is in rental property investors. And that probably has to do with improved finance costs and the fact that house prices, which had been actually declining going into the summer have been coming back up since June.
So if you talk to flippers, about 51% said they were better than last year and they expect things to improve in the next six months. Whereas if you talk to rental property owners, only 20% thought conditions were better today and only 22% expected things to improve over the next six months. And I believe that’s indicative of the trends you were talking about and the fact that we’ve seen rental asking prices drop significantly year over year. So it’s probably a little bit of a tighter market for rental property investors today. Harder to make those numbers pencil out than it is for flippers.

Dave:
That’s super interesting, Rick. Yeah. It makes sense though. I think in a market that is stabilizing and grew a little bit last year, at least on a national level that bodes well for flippers. It seems that a lot of rental investors, at least ones I know or talk to, were hoping for prices to come down a little bit to experience a little bit of a reset on the price to rent ratio, being able to buy more cashflow for value. And that hasn’t really happened in the majority of markets. So it seems to still be a tough environment out there for rental property investors. And I do want to jump over to talk about flippers in just a minute, but want to follow up on renters for a second or rental property investors.
Your survey shows that sentiment has improved, it’s still a little bit lower than flippers. Does that correlate or can you tell if it correlates to actually intention to buy? Does that mean more people plan to buy in 2024 or what implications does this have for the market over the next few months?

Rick:
I’m speculating here, but it’s based on what data we have. I believe the rental investor sentiment being weaker is really all about math. We’re seeing home prices go up, mortgage rates haven’t come down that far. And asking rental prices in some markets are actually in negative territory. So it is a much tougher market for a rental property owner today than it probably was six months ago. And the conditions don’t look likely to improve dramatically over the course of 2024. If you look at most economists forecast in terms of what’s likely to happen in the housing market, the consensus is we see prices go up and we only see a marginal decrease in financing costs. That combination plus the fact that we had a million new apartment units come online last year, which flooded the market with inventory does combine to make it tough sledding for rental property investors for a little while.

James Dainard:
Yeah. And it seems like we run a brokerage out in the Pacific Northwest that does a lot of investor acquisition, multifamily, single family, fix and flipper rentals. And what we’ve definitely seen over the last, I would say 12 months, is the investors that have been investing for 5, 10, 15 years on a long-term approach, those are the ones that’s at 25% that you’re talking about or the 22%. They have that long-term approach where they’re going, okay, well I’m buying a property on value right now. I’m getting a good price. Because right now when you’re looking at rental acquisitions, even when we’re closing on them, the cashflow is not great, but the value is really great where you’re looking at, oh, hey, I’m buying this at replacement cost or I’m buying this a door cost, it’s 35% below what it was 24 months ago.
With that sentiment, I feel like because a lot of the sentiments just based on the trends. And over the last 36 months we’ve seen this cheap financing and the trend was just buy assets, grow your portfolio and collect your cashflow. And it rushed everyone into the market. But that’s why it’s cooled down so much because the only ones really transacting are the long-term investors and the 1031 exchangers. And other than that, the rental math doesn’t work very well unless you’re buying for that really long-term approach.

Rick:
Yeah. I guess the one little glimmer of hope for those investors is if you can make the numbers pencil out today, the odds are that the investment grows in value over time. Your rent price is going to go up pretty much every year at least a little bit. And the likelihood is that we see mortgage rates drop by about two points at least in the next year to 24 months. At some point you’re probably going to be able to refinance that loan you got into a lower rate. And that’s something you really can’t do with a lot of other investments is reduce that base expenditure.
So I do think that coupled with the fact that depending on whose numbers you look at, somewhere between 20 and 25 million prospective home buyers had been priced out of the market by the combination of high home prices and high mortgage rates and they got to live somewhere. So likelihood is they’re probably going to look to rent. And I do think at least for the next couple of years, while we reset the price parameters in the housing market that’s going to provide opportunities for rental property owners.

Dave:
Rick, when you talked about insurance being added to this survey, first of all, you mentioned before we get into the data, you mentioned that people were grumbling about it. What is the grumbling you’ve heard of?

Rick:
Well, I can speak as a California homeowner before we even get into the investor area. So I was with the same insurance company in the same house, never filed a claim, never missed a payment, 22 years, got a notice of cancellation.

Dave:
What?

Rick:
Out of the blue.

Dave:
Oh my God. Wow.

Rick:
And it’s because California reconfigured the risk areas in the state based on wildfire. Now also, keep in mind there hasn’t been a wildfire within miles of my house in the last 20 years. But we’re now in a risk area. So the underwriters are no longer writing policies and this one decided to pull out. So insurance companies have actually been pulling out of California. It’s a combination of increased risk. The fact that home prices have soared and the California Department of Insurance makes it difficult for insurers to raise premiums to reflect those higher costs. So in a lot of cases what I’ve been hearing from real estate people is that they’re having trouble selling a home because the buyer can’t get insurance, or a buyer may not qualify for a mortgage because they didn’t expect their premium would double, which is basically, by the way, what happened to me when I was finally able to get new insurance. And we’re hearing similar stories in Florida, we’re hearing similar stories in Texas that may surprise you a little bit.
Florida, obviously you have the hurricane issues, California wildfire. Texas it turns out according to some research from a company called Verisk was ground zero for hailstorm activity last year. An 18% increase in hailstorm activity which causes billions of dollars damage. So that’s what we were starting to hear industry-wide. And I’d heard it from enough investors in those states that it made sense to incorporate it into the survey. And by the way, those are three of the four states most commonly noted as where people invest. California, Florida, Texas, and New York as it turns out, are the four states that were the most often cited by the investors who responded to our survey. So real world question for those people.

Dave:
Every roofer in America is now moving to Texas right now with all those hailstorms. That’s a gold rush for them. But Rick, so does the data actually support what you’ve heard and how is it impacting investor returns or sentiment right now?

Rick:
Well, it turns out it is definitely on the minds of investors. About 70% of the investors who responded noted that rising premiums and limited availability of insurance were factoring into their decisions about whether to buy an investment property. And about 62% noted that it was somewhat of a hindrance in their ability to buy and sell properties. So definitely something that is on the minds of investors and is becoming more of a real world issue when it comes to their ability to successfully buy and sell these homes.

James Dainard:
And these insurance costs are real impactful against these performers. And I think it’s something that it’s being missed a lot by investors, especially on the flip investors, because when you’re buying a rental property, you’re getting your insurance quote and you’re working into your expenses, it’s going to affect your cashflow. So it’s right there in front of you when you’re looking at it. And even on us for anything that’s value add we’re renovating these old apartment buildings, our insurance premiums have doubled the last 12 to 24 months. But then also on the flip insurance, it has been a complete nightmare and we flipped. We have a builder’s risk policy. We’ve been flipping for 20 years. We have almost no claims on our insurance during that 20 years. And right now like I was just looking at a quote on a flip property that we just bought and our cost for the flip insurance was 47/54, and there is nothing that is refundable. It’s a non-refundable policy.
So if we sell that in four months, the policy is written for a year, we’re out that money. On average, a lot of these flip properties make 45 grand. And on this one, it was a bigger one where it was more of $100,000 dollars profit. But that’s four to 5% of the net profit now is being paid to the insurance. If you’re doing 10 deals a year, that’s a lot of money and it’s eating up the margins and it’s a real cost and I’ve seen it affect more of the rental buyers and they’re the ones complaining about it. The flippers are so short term, they’re not really looking at it. But when you really break down that cost, it compounds rapidly.

Rick:
Well it’s funny you said that because when we broke out the responses about insurance for flippers versus rental property owners, the concern was more top of mind for flippers than it was for rental property owners. So about 80% of flippers noted that they were thinking about insurance as an issue, and 74% said it was a little bit of an issue, a little bit of a hindrance today. But only 9% said it was a really big challenge or expected it to be one of their top three challenges in the future. On the other hand, about 69% of rental property investors, so 11% lower thought that insurance was a factor in their decision making today. And only 62% cited it as a hindrance. But when you look at how they viewed it in terms of whether it was a top challenge, rental property owners were more than twice as likely to look at it as a major problem. Almost 30% said it was a challenge today, and 25% said they expected it to be a top three challenge in the future. So what you’re saying makes perfect sense.
The flippers know it’s an issue, but it doesn’t appear to be a practical matter for them probably because they’re not holding the property that long. So if you can build that higher cost that you were talking about into your sales price, maybe you can adjust accordingly. But for the rental property owners, it’s a longer term problem.

James Dainard:
Yeah. And it’s also the process that has slowed things down. I mean, I’ve insured hundreds and hundreds of properties and flip development, and now they want to go look at the properties every time. We used to just send photos, our scope of work, and they’d be like, “Cool, we’re done.” They’re like, “Oh, we need to do an interior inspection.” And it is definitely a different process. It slows things down. It’s a lot more expensive. It does really affect the returns. I just haven’t seen it affect the sentiment much. That’s the crazy thing.

Dave:
Now that we’ve discussed Rick’s report, we’re going to switch our attention to a new flipper’s report from Adam Data right after this. So on top of the data that you’ve been collecting, Rick, there is a recent report from Adam talking about trends in the flipping industry. Can you tell us a little bit about what they’ve found? Because this whole industry seems to be facing an identity crisis or something right now. Can you help describe what’s going on here?

Rick:
Yeah. Again, I hate to be boring, but it’s math, not that many properties available for sale. There’s almost no foreclosures, which flippers have long been very interested in buying and sales volume across the country in terms of home sales has been declining year over year and month over month. I think we’re at 27 consecutive months now where we’ve sold fewer homes than we did the year before. So not a huge surprise, but we’re seeing fewer properties flipped. I believe in Adam’s last report, which was their Q3 2023 report, they showed that about 72, 73,000 flips happened in the third quarter. That was down pretty significantly from the prior quarter and way off from the year before. And it’s reflective of that sales volume. I mean, overall home sales volume is down about 20% year over year. So not surprising that the number of flips would go down as well.
The light at the end of the tunnel though is that the flippers who are successfully selling properties are seeing their margins of proof. Now these are Adam only tracks gross margins, so we can’t really account for costs. But if you look at the price purchased versus the price sold, that number’s at least been improving a bit, which is good news for flippers.

James Dainard:
Yeah. I think all the fear in the market for the last 12 months definitely created a lot wider margins for flips. And at the end of the day, flipping is one of the riskiest asset classes that you can be in. You’re buying something, you’re doing a heavy value add, typically. You’re buying it with expensive debt and you’re looking at trying to achieve a very high return. What we’ve seen is the access to capital has also gotten very expensive for flippers. A couple of years, financing was seven, 8% for short-term flipping debt, and that’s not normal. Typically, construction hard money debt is 10 to 12%. It’s been that historically since 2005. And the access to capital really got people in a frenzy. So people are buying on very slim margins.
And now what I feel is as this debt’s increased a lot of flippers at the end of 2022 and ’23, they felt their interest payments rise because they were on adjustable rate hard money loans, and their payments went from 7% to 10, 11. And that cash suck really spooked people. And then when they saw the sudden depreciation, when the rates spiked, it also hurt a lot of people on the way out the door. But what we’ve seen is we’ve seen this exodus of the 75% flippers and the 25%, we’re still able to obtain some very good deep discount buys to where our spreads have almost doubled the last 12 months.

Rick:
Wow. Well, it’s almost been unfair. I mean, it’s been piling on for flippers. We just got done talking about insurance premiums doubling. You talked about the fact that the premium you had on a flip was non-refundable. So even though you maybe only had the property for three or four months, you were paying for a full year. So you have that. You have the cost of repairs between materials and labor go up about 7% year over year. You have higher finance costs. You’re seeing rates go from 7% to 11 or 12%. And then on top of all of that, a lot of flippers are having a hard time getting a loan at all. I’ve talked to some lenders, I’ve talked to some investors who basically have acknowledged that unless you have a track record right now, a lot of the finance companies won’t touch you because they don’t want to take on the risk in today’s market.
So it’s fascinating that we’re seeing as many flips as we are if you calculate all of those things into it. And the price increases I’ve been talking about in terms of home price appreciation have been recovering. But I’m not sure they’ve been recovering strong enough to offset all that. Most recent numbers I saw from the FHFA, which is what handles all of Fannie Mae and Freddie Mac backed loans. Was it year over year home prices are up between five and 6%? That’s good, but does that really cover everything that we just talked about? And those home buyers who would buy from a flipper have affordability issues themselves because they’re not able to finance that purchase with three and a half, 4% mortgages anymore. So they have to scale back the price they can pay.
So it’s really been a rough market for flipping over the last few quarters. I suspect it will start to feel better as we get through 2024. I don’t expect home prices will soar this year, but I do think they’ll be net positive. And I do think interest rates will start to come down gradually over the course of the year. So market condition should improve a little bit for flippers, but it’s not going to be what it was a couple of years ago.

James Dainard:
Yeah. We saw a big jolt in the market the last week. We sold a lot of properties that were flipped that were sitting throughout December. And we’re definitely seeing a jolt. And I think the complexity that you’re talking about has created these wider margins. The higher construction costs, higher debt cost harder to get access to financing if you don’t have a track record or liquidity. And the more complex an asset class, the bigger the margin typically.

Rick:
Has to be.

James Dainard:
It has to be worth the risk because we’re doing right now about 35 to 40% of our normal volume because there’s less opportunities out there. But when we perform out our profit, we’re projecting higher profits than we did the past two years on a reduced volume. The complexity is also allowing you to work smart. You can pick and choose your deals, you can get into them. And it’s pretty crazy because we’re working half the amount of capital, we are doing half the amount of projects and we’re projecting the same if not more profit for the year. So as long as you can vine everything up, it’s really worth the risk. But you have to control those costs, those construction costs, debt costs to make it work.
There’s one thing I would love to see in your report, the sentiment of construction costs between builders and flippers. Because right now what we’re seeing is, I know when I talk to builders, like, oh yeah, my costs are going down. They feel better about the building. They’re like, it’s been coming down five, 10% the last 12 months, but if you talk to flippers, their costs are still going up. Because it’s a different trade market. So the sentiment between the two investors is so different the last 12 months. It would be a really interesting fact to look at.

Rick:
Yeah. There are a couple categories if you’re looking at things like building materials and appliances and so forth where prices have been settling down. Most notably, lumber is down pretty significantly year over year. And candidly, that’s probably more of an issue for a construction person than it is for a flipper. A flipper’s probably going to be looking more at things like paint and carpeting than they are at raw lumber. So those categories unfortunately have not come down. One of the categories we’ve seen that the fastest price increases in, and I don’t know why, is doors. So you have these little quirky things that will hit your bottom line sometimes.
But what you’re saying tracks with the Adam report. By the way, they were looking at gross margins in the third quarter of about 30%. And that was up from 22% a year ago. So again, I think the flippers that are in today’s market are probably more experienced. They probably know what they’re doing. So they’re being very selective about the deals they take on. And I’m also optimistic that like you, they’re seeing their net margins improve because they’re figuring out where they can save money in, whether it’s materials, labor or financing. Maybe they’re getting better rates than some other folks are because of longstanding relationships. So I do think for people that are experienced flippers, there’s still opportunities.
The other thing that I don’t believe was necessarily called out in the Adam report, but we’re seeing elsewhere is the markets you’re working in matter a whole lot as well. So we are seeing a lot of activity moving into the south, the southeast, and even the Midwest where properties frankly are more affordable. And where we’re also seeing population and jobs move. And Dave’s probably sick of hearing me say this because we’ve talked about it I think every time we talk, but if I’m an investor, I want to look for a market where population is growing and where there’s job growth. And if you have positive numbers in both of those, you’re probably going to have a pretty good housing market, both for owner occupants and for rentals. So that’s something I think savvy investors are probably keeping an eye on today.

Dave:
Well Rick, thank you so much for joining us today and sharing your insights with us. We really appreciate your time.

Rick:
It’s always a pleasure talking to you guys, and let’s do it again soon.

James Dainard:
Thanks, Rick.

Dave:
All right, James, I have several questions for you, but my first one is you said something pretty crazy on that show that you’re doing basically half the amount of volume that you were doing but are projecting similar even higher profits. So where is that bigger margin coming from?

James Dainard:
The bigger margins coming from working smarter right now and what’s happened is the market’s gotten tougher to finance your deal, do the renovations, do the construction and flipper’s appetite right now is they’re still a little worried about the market, so they’re staying away from more complex construction projects. And because we’re willing to take on, for us as investors, we want to target the best returns. Now, I don’t want to do brain damage on these properties and rebuild them all. That’s not that enjoyable. It’s a long process.
But we saw the margins double because there’s so much more risks and complexity behind those deals as far as the permitting, the construction, the amount of cash you need, and it’s created this void. So because we can get them so much cheaper, we’re able to leverage more on those properties. We have better loan to value. That’s less cash in the deal. There’s less competition on them. So the walk-in profit is already substantially higher. And it’s really allowing us to double our cash on cash returns because we’re getting better leverage, and we’re getting deeper margins and we don’t have to bid things up anymore. We can negotiate on logic. And the logic is the costs are high to fix this property, you got to come down in price.

Dave:
That makes sense. Well, that’s good for you. I mean, it does make sense that people who are more experienced are more active right now in taking on the bigger projects. Do you think it’s going to change because you sit in a very interesting seat. Your company flips a lot of houses every year, but you also as an agent work with a lot of flippers too. So do you see more flippers eager to jump back into the market or maybe take on more risk in the coming year?

James Dainard:
100% we are seeing that. I probably have a line of clients out the door trying to get investment property, a lot of flippers that had taken a break for a minute. Or even rental buyer acquisition as they’re predicting that rates are going to fall, they’re getting back in line to buy. And it’s a little bit unfortunate for half of them because they missed a lot of really good deals. And I’m starting to see the margins already shrink the last 60 days on what we’re looking at purchasing. There’s a lot more competition ramping up. And I know in the Pacific Northwest, the sentiment is people are jumping in. They think rates are going to be lower. They think appreciation is going to pop up, and they think that their cashflow is going to improve a lot. I would say the investor demand locally where I am has quadrupled over the last 60 days.

Dave:
Wow. Yeah. I mean, you do miss out. If you wait and try and time the market, you probably miss the best part of it because you wait until people are getting great returns and then by the time you jump back in, it’s already the best possible time has passed. But it’s good to hear that sentiment is increasing even if that might compress margins a little bit in the next year or so. I think the more transaction we can get, the better for the housing market.

James Dainard:
Yeah. And there always needs to be a certain amount of investor activity in the market. The end users can’t consume most of the product that we’re buying. And for a while, I will say these sellers they were selling their properties for substantially less they really missed the market because they had no demand. So the silver lining behind that is a lot of these people that have owned properties for a long time that want to sell them, they’re going to be in a better position to recapture their equity again.

Dave:
Awesome. Well, thanks so much for sharing your insights and your personal sentiment about the market, James. We really appreciate it. Just as a reminder to anyone listening, if you do want to check out my book, it is the last day to get the free planner and all of the bonuses, go to biggerpockets.com/strategybook to check that out. Thank you all so much for listening. We’ll see you next week for more episodes of On The Market. On The Market was created by me, Dave Meyer and Kalen Bennett. The show is produced by Kalen Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

 

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