While listening to the radio going to and from appraisal appointments I’ve been hearing an increased number of commercials advertising various Chicago house flipping programs. It got me thinking as a Chicago appraiser if the Chicago real estate market is primed for house flipping. Let’s take a look at the Auburn Gresham neighborhood in Chicago’s south side.
We need to look at various factors let’s start with the seller types.
Since January 1, 2014, 52% of sales were foreclosure sales, 43% were traditional sales, 4% were short sales and 1% were court ordered sales. The ratio of foreclosure sales to traditional sales is fairly close and by looking at this indicator alone one might think that this market is primed for house flipping. Let’s look at the sellers from another perspective.
Looking at the price points gives a better indication how the seller types relate to one another. This graph shows that the majority of foreclosure sales sold for $60,000 or less while traditional sales have sold in almost every price point for the market. Why are some traditional sales selling in the same price point as foreclosure sales? While they are not technically a foreclosure they reflect a similar distressed physical condition as foreclosure sales do in this market. This is why if someone is only looking at the overall percentage of foreclosure sales versus traditional sales they could make a bad decision. The basic pattern here is properties that you would consider to flip can be found in the $60,000 or less price point, but does that mean you can flip it? Let’s look at who the buyers are.
The pattern continues, cash buyers are buying at the $60,000 or less price point. The cash buyers are investors or house flippers that are looking to buy a physically distressed property cheap, fix it up and sell to a retail buyer high. Who are the retail buyers? FHA, VA & some conventional buyers are buying retail. Does that mean if you buy you can flip it? Let’s look at the percentage of buyer types to help us finally answer the question.
We’ve already established that cash buyers are investors or house flippers. Roughly another 2-5% are investors through renovation & conventional loans for an overall 70% of buyers being investors or house flippers with the remaining 25% of buyers being FHA, VA & conventional buyers or retail buyers. What does this mean? There aren’t enough retail buyers to buy all the properties that were purchased by investors or house flippers.
To answer the question, while it is possible to buy a property and flip it, the Auburn Gresham neighborhood is not primed for house flipping, rather market data indicates that if you buy here you can expect to hold the property.
Look out for my next blog in which this Chicago real estate appraiser will show you a market that is primed and ready for flipping.
Do you have a market and property type you want to know is primed for flipping? Let me know in the comments below.
Did I leave anything out or do you want to join the conversation? Let me know in the comments below.
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