"Do Low Real Estate Prices Help You or Hurt You When You Want to Flip a House?"

A recent article in the Wall Street Journal by Christina S.N. Lewis points out that many buyers who want to flip a house are now heading to the worst-off real estate markets, hoping to find hidden gems and dirt-cheap properties.

Lewis notes that in parts of Phoenix, Arizona house prices are down 17% or more from 2006. In parts of North Carolina, prices have decreased 10%-20% since 2006. Median Cape Cod house prices fell 6% from a year earlier. The median price of a Santa Barbara home dropped 4.5% between January 2007 and January 2008. Prices in the Los Angeles area fell by 15% in 2007. Median prices in Las Vegas declined 14.4% between January 2007 and January 2008. Across the board, prices have dropped, and in some markets they have declined significantly. What does it mean to you?

In areas where people tend to have second homes – places such as Santa Fe, Cape Cod, Martha's Vineyard, and Napa Valley – are seeing more homes on the market as well as dipping asking prices. Foreclosures are rising rapidly and loan delinquencies are almost at a 23-year peak, reports the Mortgage Bankers Association. Experts think that the situation will not improve until late this year or even until next year.

The result of all this is desperate sellers and picky buyers. Some buyers looking for higher-end properties report offers of free cars and other goodies. Others report looking at dozens of homes without making a selection. Some buyers are still looking for prices to fall further in markets such as Los Angeles and New York. Buyers report making low-ball offers – something that seller’s agents are trying to avoid.

Smart investors are staying away from real estate markets that have questionable job markets. While markets such as Cleveland and Detroit are also seeing price drops, many investors are focusing on California, Miami, and Las Vegas. In these areas, overdevelopment and high lending standards are what seems to be pushing real estate prices low.

When the market was doing well, newbie investors looking to flip a house could find a buyer in just three months. Now, many investors are planning to hang onto an investment property for at least three to five years. Naturally, this means considering maintenance and management costs.

Many investors are reacting to the news of the falling prices in one of two ways:

1. With enthusiasm. Some investors see the lowered prices as a boon since now virtually anyone can afford to get into the real estate game. Reselling fast may be a problem, but buyers still do exist, the optimists claim. Investors are still looking for properties to buy and those with expendable income will be using the low rates and low prices to buy, buy, buy. Investors who have been in real estate a while know that the market will turn around again and are waiting for the upswing. Many claim that there is still plenty of room for professionals who know what they are doing.
2. With dread. Many investors – especially the newbie ones who were doing so well a year ago – are getting out of the game or even foreclosing themselves. Rather than deciding to flip, these investors are either getting out entirely or deciding to avoid flipping.

It’s easy to get caught up in news like this, especially if you are new to the real estate investment market or are just considering getting in. It’s pretty telling that few seasoned investors are panicking, however. If you want to get into real estate, low prices and low rates right now can be a great foot in the door. Even if you want to flip a house – and have no interest in renting, for example – it is still possible if you enter a market where people want to buy and are able to offer something truly tantalizing. And if you decide that flipping is not for you, there are still many other deals out there for you. It is true that you will have to be more careful – market more effectively and buy more selectively – but success still does away for the savvy investor.

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