I am in a unique position; not only am I a private money lender, but I am also a house flipper. Because of this I am privy to the information shared amongst the lenders (with the upside and downside of lending) and as a house flipper I look for lower interest rates, lower fees and higher leverage. The diversity of my business interests affords me a broader perspective of the super-hot California real estate market.
The real estate market is crazy-good for private money- lenders and for house flippers in many California cities. Rebounding from the devastating downturn of 2007, multiple offers above the asking price is now the norm.
Recently, I put in an offer on a home in Pleasant Hill, CA (a city located 30 minutes outside of San Francisco). The 1042 square foot home, had three bedrooms, one bathroom, and needed a complete rehab. I intended to add on and turn this into a four bedroom, two baths, 1950 square foot home.
However, this property had over thirty offers. It listed for $375,000 and sold for $476,000. This blew my mind. And the frenzy-like atmosphere reminds me of the 2005/2006 markets prior to the crash. Times have definitely changed and I am amazed that surrounding markets like San Francisco and Silicon Valley are already over peak prices.
Obviously, Facebook, Instagram, and Twitter employees are helping drive prices up. High-paying jobs have helped to bring the market back. Like any business, networking and making connections are the driving force to find off-market rehab projects.
Joining a local REI club is a terrific way to network, find potential properties to flip, meet like-minded investors, and it is also a great way to meet wholesalers “bird dogs” and real estate agents who specialize in working with house flippers.
Another marketing strategy is to develop long-term relationships with successful contractors and architects. These types of connections help to increase business simply because of their interaction within a neighborhood. Working on a home in a community inspires neighbors to renovate and can often lead to the sale of a home rather than the undertaking of a major rehab.
A noticeable trend in the real estate industry is the move from simple cosmetic changes (paint, carpet, windows, etc.) to large renovations such as increasing square footage, tearing down existing property and building a new home.
The profit from flips is getting tighter. However, if you can do larger type deals in key markets, the margins are still there. Because of my background in the hard money business, I come across a lot of properties. I found that the key to a successful flip is to buy in the right location, to know what type of buyer would be attracted a particular neighborhood, and to have a detailed scope of work so that you stay within your budget.
Another important aspect of flipping a home is building permits. It is critical to do your due diligence and determine whether the project calls for over the counter permits or full architectural plans and a planning department. A six-month project could easily turn into a year if the proper permits aren’t issued, and the profit margin would be diminished by this oversight.
I am in a fortunate position because I am both a house flipper and a private money lender in a time of a great market resurgence.
Beau Eckstein, Real Estate Investor, TV Personality, Private Money and Construction Financing Specialist. Beau has a diverse real estate background and has been in the real estate industry since 1999. This includes real estate sales, residential mortgage lending, as well as commercial finance, construction financing, and private money loans.