Is Home Flipping a Good Idea?

Finance and Taxes

They make it look so easy on TV. Buy a house, fix it up, and resell it for a big profit. But that’s easier said than done. Here’s what you’ll really need to be a successful home flipper:

Cash – Most flippers pay cash for properties. You can get a loan, but you’ll need good credit to qualify for enough to cover the costs of both the purchase and resale transactions, renovations, utilities, homeowner’s insurance, and to cover unexpected expenses. You should have cash to cover your carrying costs throughout the timeline of the project and a tax plan to pay or defer capital gains.

Experience – Successful flippers follow a formula—an undervalued, distressed, or unimproved and dated property that can be purchased using the 70% rule. If you plan to sell the property for $500,000 after renovations, you should pay no more than $350,000 to acquire it, plus the costs to make repairs and updates, allowing you to make a typical profit of $67,000. If the property looks as though it will cost you too much to make it sellable at $500K and still make a profit, it’s not a good candidate for flipping.

Labor and Materials – Most flippers do the work themselves, but you may need skilled labor such as electricians and plumbers. Working without a license can expose you to fines and lawsuits for faulty construction. You must be savvy about the costs of materials needed, supply chains, and have the correct equipment and insurance to work safely.

Housing Shortage Continues into June

Finance and Taxes, Market Update

Despite monetary policy changes by the Federal Reserve in early summer 2022 and winter of 2023 that caused mortgage interest rates to more than double from 3.5% to around 6.5 to 7.3%, the housing market is still moving along, in spite of record high home prices and higher mortgage interest rates. 

May 2023 sales have been brisk and show no sign of slowing as we move into June. Properly priced homes are again receiving multiple offers within a day or two of the listing date. A condition that exists when the number of buyers exceed the number of available homes for sale. The figures below are consistent with those of this month in 2022.

Lansing Area Market View – June 1, 2023
  423 – currently listed homes for sale in the five county greater Lansing area.
  228 – homes with accepted offers. (Awaiting inspections and/or appraisal.)
 398 – homes listed as Pending. (Have completed inspections and will soon close.)
1973 – homes that have closed since January 1, 2023. 

Current Mortgage interest rates
  30-year fixed – 6.57% ($6.37 per $1000)
  15-year fixed – 5.97% ($8.42 per $1000)

Traditional Spring Market is Underway

Market Update

For more than seven years, the Lansing real estate market has been defined by a limited supply of available homes, mortgage rates below 4%, and homes sales exceeding the asking price by thousands. In April of 2022, sellers routinely received competitive offers within a few days of market exposure. In June, mortgage rates suddenly doubled to 7.3% leaving many buyers to reconsider the purchase of a home.

The 2023 Spring homebuying season is beginning in the shadow of continuing inflation and high home prices which may be giving both buyers and sellers reason to pause. However, despite changing market conditions, it’s still a seller’s market…and mortgage rate is the only change!

• The number of buyers continues to exceed the available home for sale.
• Mortgage money is easy to obtain.
• Given the comparative cost of renting, consumers are feeling better about the housing market.
• Sellers may not receive offers exceeding the home’s fair market value.

Home sales statistics for this first quarter of 2023 are consistent with previous years in the Lansing area market. Of course, things may change, but rents have been steadily increasing, making it economically cheaper to buy than to rent.

Lansing Area Market View – April 1, 2023
  405 – currently listed homes for sale in the five county greater Lansing area.
  219 – homes with accepted offers. (Awaiting inspections and/or appraisal.)
  280 – homes listed as Pending. (Have completed inspections and will soon close.)
  1094 – homes that have closed since January 1, 2023.
  6339 – homes that have closed in the past 12 months.

Current Mortgage interest rates
  30-year fixed – 6.42% ($6.27 per $1000)
  15-year fixed – 5.68% ($8.27 per $1000)

How to Care for Your Home’s Fixtures

About the house...

If you’re like many first-time homeowners, you may be watching your pennies by using the same cleaner on all your countertops, stainless appliances, porcelain sinks and tubs and other fixtures. But you can easily strip finishes, set stains and make other mistakes by using the wrong product. Here are some inexpensive and proven old-fashioned solutions for cleaning your surfaces.

A gentle diluted dishwashing liquid or soap and water will clean anything well, including wood cabinets. Just be sure to rinse and dry the surface with a soft cloth to prevent streaking. Don’t use bleach, glass cleaner, or abrasive cleansers on any countertop.  Use cutting boards, spoon rests, and trivets to protect your surfaces from accidental knife cuts, stubborn food stains, and heat damage from pots and pans.

Countertops – For granite, quartz, soapstone and marble countertops, don’t use acidic (lemon, ammonia) or abrasive cleaners, bleach or glass cleaner. To attack stains, make a paste with baking soda and warm water. Apply and let it sit for five or 10 minutes, then rub the paste gently into the stain. Gently rub in a little mineral oil occasionally to make the finishes last longer.

Stainless appliances – Soap and water work best. After drying with a soft dishcloth, apply a little mineral oil to cut down on streaking and fingerprints.

Porcelain sinks and tubs – Bleach strips porcelain finishes, so use hydrogen peroxide or white vinegar to clean without scrubbing. For stubborn stains, use a little Naval Jelly and rinse thoroughly afterward.

Sellers: Don’t Be Surprised by Repairs

Buyer Information, Seller Information, Uncategorized

Repairs or replacements that the homebuyer requires to be completed before closing on the sale of your home can blindside you if you’re not prepared. While any unforeseen expenses are an unwelcome surprise, you’ll still have to fix the problems or risk letting your buyer out of the contract and having to disclose the problems to future homebuyers.

Homebuyers have the right to have the home they’re buying professionally inspected. The purpose of the inspection is to inform the buyer as to the condition, age and likely lifespan of major systems and appliances in the home. As a contingency in the contract, the buyer has the choice to proceed with the contract or ask the seller for repairs or replacements. This is fair because many issues with a home can’t be seen with the naked eye. An inspection gives a rough idea of future expenditures; if there are more problems than the buyer is willing to allow, the transaction will be in jeopardy. The buyer can’t help but wonder what other problems may come to light about the home.

Obviously, the less the buyer finds wrong, the smoother the transaction will be. Before you put your home on the market, hire a licensed home inspector to alert you to unknown problems and repair or replace them so the buyer has no misgivings. You’ll also be able to ask a higher price for your home when it’s in excellent condition.

Keep Heating Costs Down This Winter

About the house...

In fall 2022, experts warned that heating costs will be the highest in 10 years as households pay nearly 18% more this winter. Between the 2020-21 and 2022-23 winters, home energy costs increased by 36%. So, what can you do to stay warm and save energy costs?

Check your home for air leaks:

  • Nearly one-third of a home’s heat loss occurs through windows and doors.
  • Air can leak through electrical outlets, baseboards, and attic hatches.
  • Caulking leaks can save the average household up to $166 per year.
  • Weather-stripping windows can save up to $83 per year.

Next, check your energy usage habits: 

  • Lowering the thermostat by 10 to 15 degrees Fahrenheit for 8 hours at night can save as much as 10 percent on your heating bills.
  • A smart thermostat saves about $180 per year in energy costs.
  • Just one LED bulb can save you $50 over its lifespan. Multiply that by the average number of light sockets in a home – 40 for a savings of $900.
  • A gaming console uses at least 10 times more energy to stream a movie than a Roku box or smart TV app.

 Water Heater Tip!
Lowering your water heater from 140 degrees to 120 degrees will save as much as $400 annually.

Home values are up. Sales numbers are down!

Current Lansing Area Sales Statistics, Market Update

Fourth quarter sales statistics (October – December) shows that the average sales price of Lansing area homes increased from $214,161 to $229,554 during the twelve months ending on December 31, 2022. This 7.2% growth represents an average home value increase of $15,393.  (These figures include all sales throughout the Greater Lansing Association of Realtors.)

 Check out our Fourth Quarter 2022 Sales Statistics Link (below) for an update of sales activity by community. (Please note that pending sales, properties under contract that have not yet closed, are not factored into these statistics.)

Fourth Quarter 2022 Sales Statistics

Interest Rates
The overall number of home sales is 864 units lower than at the close of 2021. This 11.5% drop was due to a sudden change in buyer purchasing power when mortgage rates suddenly escalated from below 3.5% to 5.8% in June. Rates went as high as 7.3%, finally finishing at 6.42% by year’s end. Many buyers, suddenly unable to purchase the home they had been shopping for, just walked away.

Financially, borrowing $200,000 in April 2022 at 3.5% would have produced a monthly mortgage of $898. The same $200,000 mortgage at 5.81% (end of June) cost a buyer $1175, an increase of $277 in the monthly payment.  A mortgage loan at 6.42% results in an increase of $368.

As we enter 2023
Owning is still less expensive, and more satisfying, than renting. Recent sales, and January open house activity has demonstrated that buyers are adjusting to the cost of home ownership at mortgage rates similar to what they were twenty years ago, when the market was booming.

Housing Outlook 2023

Market Update

What will the new year bring for homebuyers, homeowners and home sellers? Lower or higher home prices? Higher or lower mortgage interest rates? Or a continuation of the overheated pandemic-inspired housing market?

There’s no question that the blistering housing market of the past three years was hard on homebuyers. By October 2022, the average mortgage interest rate for a 30-year fixed is 7.24%, more than double the 3.22% level in January 2022.

According to Fannie Mae, the combination of high inflation, monetary policy tightening, and a slowing housing market is “likely to tip the economy into a modest recession in the first quarter of 2023.” However, the housing market is typically slow during the first quarter in Michigan due to cold weather.

Many economic forecasters believe housing prices will decline, but that homebuyers shouldn’t fear buying during a declining market. Morgan Stanley predicts a 7% dip in home prices for 2023 that would only return housing prices to where they were in January 2022 – 32% higher than prices were in March 2020 when the pandemic began. Economists with Goldman Sachs and Moody Analytics are predicting 5% to 10% declines in home prices, based on lack of homebuyer affordability, slowing housing sales, fewer mortgage applications and a looming recession, however mild.

BusinessInsider.com reports that the Federal Reserve’s overnight rate hikes have raised mortgage interest rates, pushing affordability to new lows, but that a recession could bring interest rates down again. That combined with softer homebuying demand due to inflation and sellers lowering their prices would make spring and summer 2023 great times to buy a home.

Get Ready to Buy a Home in 2023

Buyer Information

Inflation, home prices and interest rates were higher in 2022 than they’ve been in years, but if you’re planning to become a homeowner in 2023, you’ve got time to improve your buying power.

It’s strongly recommended to talk to a mortgage lender, even if you aren’t ready to buy until later in the year. They can “review all aspects of your financial picture” and help you find sources for a down payment, help you raise your credit score to improve your future borrowing rate and help you find ways to reduce your existing debt without triggering costly inquiries into your credit history. Most important, they can help you understand the differences between conventional (Fannie Mae, Freddie Mac) and government-guaranteed (FHA, VA, USDA) loan programs and help you choose the right loan so you can work toward qualifying for the most favorable terms.

Your goal for the near term is to save as much as possible toward a down payment. With VA or USDA loans, no down payment is required, but for other loans, you’ll need at least 3.5% of the purchase price of the home you plan to buy as a down payment. At the same time, you want to pay down debts, beginning with the least expensive credit card balances to improve your credit scores. Don’t close any accounts or incur new debt. Keep your revolving loan balances to 30% or below your credit limits. The higher your credit score, the more loan options are available to you.

It’s been the year for contradictions in the housing market

Buyer Information, Market Update

Housing sales have slowed down, home builders are slowing down production and mortgage interest rates are more than double what they were a year ago. Mortgage applications are at their lowest level in 22 years. However, home prices remain near record highs, driven by low supplies, and a strong job market. Is now the time to buy, or should you wait for housing prices and rates to come down?

Only you know when the time is right for you to become a homeowner, but if you’re uncertain, consider that the following:
Lansing area real estate market traditionally slows down during the holiday season and doesn’t gain momentum until early Spring.

Don’t expect housing prices to drop anytime soon. The housing shortage will continue in the greater Lansing area for as long as there are more home buyers than available home to fill the demand. One possible change may be that higher interest rates may reduce the number of bidding wars.

The Lansing area’s largest employers, such as Michigan State University, are in a continuing labor transition. This helps create a continuous housing market.

Owning a home is a long-term investment and a hedge against inflation. With rentals rates costing as much, or more, than the monthly cost of home ownership, purchasing a home is an option worth consideration. Should you stay in your home for a few years, allowing you time to build equity, you’ll likely recover your down payment, closing costs, and maintenance expenses.