A Not So Hot Type of Purchase

One thing is for sure about the Shelby Co./Birmingham real estate market: It’s always changing.Fixing up a home for resale

This means, in part, that the types of real estate ventures that produce revenue shift around; what used to be lucrative may not be so much that way now, and vice versa.

I’ve seen some up-close examples of this in our area lately with homes that owners decided to put money into updating and then selling.

Flipping, as it’s known, has been very lucrative for investors in the past, including here in the Shelby Co. and central Alabama area. But we’ve seen Sellers recently having a very hard time with this approach, and this goes for people who have owned the properties for some time, too.

Owners with visions of fixing up for a profit may have gotten pretty good deals to start with on the property they bought, and then expected to end up making money, even after spending to update. Turning a net profit sometimes in the many tens of thousands of dollars was not unheard of.

But that was before market values started sliding.

We are seeing cases now where—by the time the Seller gets to the closing table—they may have little or nothing to show for their efforts at fixing up.

If you want to invest, fix up and re-sell, this is a more challenging time than ever, and there’s no shortage of considerations that should be part of any decision to buy. Overlook any one of these, and the chance to wind up with a profit could be seriously jeopardized. And it’s not just about “making the numbers” work, in terms of estimating cost to fix up the property. A very careful look at sales, values and trends throughout the area is also needed; this is something some Sellers overlook, and where an Agent familiar with the local market can be really valuable.

Among the better opportunities we see right now are the many nice properties available that could be rented. There are a lot of homes in the Birmingham and Shelby Co. area we feel would make great rental properties. And there are a lot of people looking to rent (in fact, the Birmingham MLS just recently added rental properties).

But the type of real estate investor who’s comfortable with fixing up to resell may not be comfortable with being a landlord. Owning property you plan to rent involves an entirely different set of requirements, as well as being able to deal with the challenges that sometimes accompany renting. Last but not least is the requirement that landlords comply with Alabama state laws governing rental properties and obligations to tenants. The market for property managers is growing, as well (i.e. you own the property but pay the manager to oversee the property and process rental payments).

In the short term, leasing property is probably not likely to be a money-maker for the owner. But as the market evolves, perhaps values will start to shift into more positive territory. For the owner who holds on to property long enough, this could be setting the stage to build equity and sell later at a good profit.

It’s impossible to know, of course, what resale numbers will be like at any given point in the future. But we do know one thing for sure: The market is always changing.


About David Black

Colleen and David Black love what they do, and that's helping people who want to buy or sell homes in the Birmingham and Shelby Co. area achieve their dreams...

Posted on December 3, 2010, in Commentary, Shelby Co. General. Bookmark the permalink. Leave a comment.

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