If you’re a residential rehab professional trying to analyze the market, it is important to have both a telescope and a microscope. Think about how physicists attempt to discern how the universe works. They have enormous telescopes, both on earth and in space, peering outward toward what is vast and distant and huge, uncovering countless galaxies and oddities. Then you have people in the same field looking at the intensely small and granular. They are trying to tie both together to get a picture of how things work. It is the same thing you need to do when looking at the real estate market.
It’s good to take the huge view first. Are home prices going up, or down? Are people moving into the town, or not? Those are telescopic measures. More microscopic measures involve looking at demographics, the kind of jobs that are moving into an area, and if the city is investing in urban reinvention or not, among other things. An important microscopic measure now is cash home sales: how many people are buying in cash, and not through a bank loan or mortgage. This can tell you how you should be investing and using your hard money loan from Socotra, in an often surprising way. Let’s look at Southern California, where cash home sales have been plummeting over the last few years.
Cash Home Sales Mean That Selling Is High
In 2010, as the market was still trying to pull itself out of a death spiral, and pull the whole economy along with it, cash home sales were abundant. This is because people were underwater, in over their heads, and were living in distressed properties. Back then, flippers could get a house for a very low price. Cash sales were keeping the market afloat, and it was a great time for residential rehab pros.
See, in a time of distressed properties, professionals with capital could buy houses, fix them up, and either sell for a decent profit to people who survived the Recession, or wait for prices to go back up to where they could make a larger profit. Flippers were dominating the market then. It was a buyers market, for sure. Low demand and high supply meant that sellers had to take what they could get, and what they needed was cash. It was a perfect storm.
Now, things are different. Southern California, which was one of the leading areas for cash home sales during the Recession, is now actually below the national average. Only 25% of home sales in the area are cash, as opposed to 34% nationwide. This is indicative of a strong housing market. Property values are going up—indeed, according to the LA County Assessor, every city in LA County saw its property values rise over the last year. Homeowners are not as desperate to sell, and when that’s the case, they have more control over the market.
This is partly due to the proliferation of new jobs in the area. Tech industries are flooding into Los Angeles and Southern California, leaving the incredibly expensive Bay Area real estate market behind. Young professionals and upper management types, looking to buy houses for their families, are moving in. It is now a seller’s market. So what does that mean for fix-and-flippers?
The Good News For Residential Rehab Pros
All this seems grim. If a buyer’s market is good news for flippers, isn’t a seller’s market bad news? The answer is no—and that’s what is surprising. Fewer cash sales mean that more people are believing in the housing market again, and it is indicative of a strong and growing field. It is a data point that helps to create a picture of a strong and vibrant economy, and a sustainable one. One that, most importantly, is drawing in people with contemporary needs and ideas about housing.
This is actually an ideal market for a fix-and-flip professional who knows how to access a hard money loan from Socotra Capital, California’s leading equity-based lender. By allowing you to do a complete rehab, creating a sustainable and tech-enabled home, a Socotra loan makes your property more market-ready and appealing to the kind of buyers that are driving the real estate rebound.
Viewed with a telescope, fewer cash home sales seem like a bad thing for a pro. And it is true that higher prices mean you have to be smarter. But when you really peer into it, you don’t just see the vast emptiness of space. You see the heat of countless stars, and endless opportunities.