Fix-and-flip investing is no casual money-making scheme. It takes careful planning and foresight to succeed in every step, from purchasing your property, to renovation, to the eventual resale of your investment property.
Understanding the market conditions that help lead to a “sold” sign is key to getting the best return on your investment. Here are three market indicators that will help you better assess whether it’s the right time to start your fix-and-flip investment project.
1) Population Movement
It’s critically important to understand population trends in your target market. After all, the end goal of every fix-and-flip investment is the “flip” — selling your renovated property to a new buyer.
Finding a buyer depends greatly on the number of potential home buyers in your area, and understanding how many people are entering or exiting your market will help you determine whether or not it’s a good time to invest.
The U.S. Census Bureau offers in-depth information on population trends around the country, including a recent study on the fastest growing cities in the United States.
2) Economic Strength
A second indicator of the potential quality of your fix-and-flip investment is economic strength. If your local economy is going strong, there is a good chance potential home buyers will be more willing to make a home purchase in the near future. A shrinking economy, however, likely means a weaker real estate investment market will follow.
A related indicator is the relative economic diversity of an area. A city or region’s local economy will tend to be much stronger if it includes diverse industries, but cities that bank on one industry tend to be very vulnerable. WalletHub recently explored the most and least economically diverse economies in the country. Examining their data could help you determine if your area is ripe for investment.
3) Construction Trends
Construction and construction spending represent the third indicator fix-and-flip investors may want to monitor. Increased construction spending can mean a short supply of housing in a given market, and closely monitoring construction trends can give fix-and-flip investors a better understanding of the true inventory available in their markets.
The U.S. Census Bureau supplies detailed information on both new construction permits and how much construction companies are spending on new residential construction on a quarterly basis. Keeping an eye on this data could give you a better idea of what sorts of houses your potential buyers are looking for and whether they may be interested in a new home or a newly renovated property.