2020 Southern Colorado Fix and Flip Trends
2020 Fix and Flip Trends Report 1 ABOUT US
ABOUT SHOREWOOD REAL ESTATE Office Locations Founded in 1969, Shorewood Real Estate quickly became a premiere real estate brokerage in the United States. Our firm has posted solid growth in our 48 years of operation and are consistently recognized as an industry leader. Our investment to our local community has always been an integral part of our
mission and vision as a company. We now proudly serve the Colorado Front Range with offices in Denver, Colorado Springs and Loveland.
COMMUNITY The brokerages gave well over $150,000 to local charities in 2019. Since 2014 Shorewood Real Estate has volunteered over 17,500 hours in local communities. Giving back to the community is not just an opportunity, it's a part of the company's culture.
BROKERS & SALES ASSOCIATES Shorewood Real Estate, together with its sister companies, has approximately 600 agents across Colorado. Collectively, the companies conduct approximately 5,000 transactions per year. Together, we sold nearly $2 billion of real estate in 2019.
FUN FACT Interesting fact about Shorewood. The name Shorewood, as much as it sounds like a beach front name, was originally named after the town of Shorewood, Wisconsin, the original owner’s hometown.
2020 Fix and Flip Trends Report 2 KEY MESSAGES ABOUT THE CURRENT FIX AND FLIP MARKET:
Over the past 24 months:
• Average project gross margins (GM) was $87k. SF expansion projects only account for about 5% of all fix up projects.
• The past 24 months have seen an average of 63 rehab projects per quarter purchased on the MLS.
• DOM of purchases (17 DOM) is nearly identical to that of the marketing time for the finished product (16 DOM).
• Approximately 80% of all buy-sides occur within 25 days of list. About 6% are on the market 70 days or more.
• Over half of the projects are purchased at a discount to the last list price. A quarter of the projects pay a premium on the buy-side for the GM potential of the property.
• The average GM per project has been very consistent over time. There doesn’t seem to be much of correlation between GM and final sales price.
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 3 NUMBER OF F&F PURCHASED + SOLD There were 500 rehabs that were bought and sold on the MLS over the last 24 months, around 63 completed F&F are sold each quarter. The average GM (Gross Margin) was $87,000. Only 5% of this volume involved adding square footage.
200
150 140
100 95 78 69 68
50
0 19Q2 19Q3 19Q4 20Q1 20Q2
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 4 AVERAGE DOM (DAYS ON MARKET) TO BUY THE NASTY HOUSE
The recent average DOM of the properties before fix-up was 17 days. Most F&F are not “insider” sales.
30
25 24 21
20 18 17
15
11 10 10
5
0 18Q3 18Q4 19Q1 19Q2 19Q3 19Q4
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 5 AVERAGE GM (GROSS MARGIN)
Average gross margins have been very steady over the past 24 months. The average is $87,000 and has ranged from $81,000 to $92,000.
($000s)
100
92 91 89 90 88 87
81 80
70
60 19Q1 19Q2 19Q3 19Q4 20Q1 20Q2
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 6 DAYS OWNED (PURCHASE DATE TO CLOSE DATE OF REHAB)
It would seem as though the longer a project was held, the more GM earned. Yet this doesn’t follow for the projects that were owned the longest. Surprisingly, projects that added 100+ square feet were only held 12 days longer on average than the purely cosmetic projects.
GM by Speed of # Days Property was Owned Project
100 $97 300 $92 $85 248 250 236 $75
200
50 150
100
50
0 0 Fastest 25% 25-50% 50-75% Slowest 25% Cosmetic Add SqFt
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 7 DENVER F&F HOMES Approximately 40% of buy-side purchases are within 4 DOM. Another 40% is within 25 DOM. There doesn’t seem to be any significant correlation between buy-side DOM and GM. Projects that were able to add square footage earned about 15% more GM.
- Light Blue: Traditional cosmetic rehab - Dark Blue: Rehab involved adding sqft Cosmetic Rehab Avg GM: $86k Add SqFt Rehab Avg GM: # Projects by DOM $99k Avg GM ($000) (Buy Side in MLS)
87 192 1. Less than 4 DOM 1. Less than 4 DOM 81 7
90 112 2. 4 to 9 DOM 2. 4 to 9 DOM 118 8
84 77 3. 10 to 24 DOM 3. 10 to 24 DOM 4 97
67 89 4. 25 to 69 DOM 4. 25 to 69 DOM 3 115
27 69 5. 70+ DOM 5. 70+ DOM 3 71
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 8 AVERAGE DOM (DAYS ON MARKET) TO SELL RENOVATED F&F
As the market continues to have a strong seller’s market, the marketing times are at record lows. The average DOM for properties bought and sold on the MLS within the past 24 months was 16.
30
25 23 21 20 19
15 14 13 13
10
5
0 19Q1 19Q2 19Q3 19Q4 20Q1 20Q2
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 9 SAMPLES FROM MLS
Most F&F purchases occur within 25 days of being listed. But as you can see, not every property goes under contract “instantly”.
DOM Month 1 Month 2 Month 3
0 10 20 30 40 50 60 70 80 90
1 9 days 6 1 31 days 6565 Alberta Dr, COS $ Sold $236k buy Listed $288k BOM $249k UC UC $236k $305k sell $289k $259k
10 days 35 days 39 days 2104 Chestnut St, COS 19 days 3 3 $230k buy Listed BOM $290k $339k sell $299k UC BOM UC $315k 17 days
$230k
1218 Tesla Dr, COS 10 days 1 21 days $240k buy $303k sell Listed $275k UC Sold $285k $240k
6 6 966 Candlestar Lp, Fountain 10 days 10 days 14 days $179k buy UC $203k UC Sold $260k sell Listed BOM $179K $215K
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 10 AVERAGE AFTER-REPAIR SOLD PRICE VS. AVERAGE GROSS MARGIN
There is not much correlation between GM and end sales price. There is only about a 39% relationship, whereas this relationship is over 90% in the Metro Denver area. (Data points by neighborhood.)
R² = 0.3883
$250
$225
$200
$175
$150
$125
Gross Margin $100
$75
$50
$25 100 200 300 400 500 600 700 800 Sold Price
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 11 AVERAGE AFTER-REPAIR SOLD PRICE VS. AVERAGE GROSS MARGIN Historically, neighborhoods with more volume were more predictable in their profitability than areas with fewer F&F. While this is no longer true in Metro Denver, the correlation is in fact greater for projects completed in neighborhoods that have a great number of F&F. (Data points by
neighborhood.)37 neighborhoods with most volume (5+ flips) 61 neighborhoods with less volume (1-4 flips)
$300 $400 R² = 0.6063 R² = 0.3803 $375 $275 $350 $250 $325
$225 $300 $275 $200 $250 $175 $225
$150 $200 $175 $125 Gross Margin Gross Margin $150 $100 $125 $100 $75 $75 $50 $50 $25 $25 100 200 300 400 500 600 700 800 100 200 300 400 500 600 700 800
Sold Price Sold Price
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 12 AVERAGE AFTER-REPAIR SOLD PRICE VS. AVERAGE GROSS MARGIN
Managing the tradeoff: More gross margin usually comes at higher price points. Neighborhoods towards the upper left offer more return at lower price points, and usually with less risk.
$200,000
$175,000 Higher Purchase Price Lower Purchase Price Higher Gross Margin Higher Gross Margin $150,000 Higher Risk, OK return Lowest Risk, relatively best return
$125,000
$100,000 Gross Margin (GM)
Lower Purchase Price Higher Purchase Price $75,000 Lower Gross Margin Lower Gross Margin
Lower Risk, OK return Higher Risk, relatively poor return $50,000
$25,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 600,000
Sold Price
2020 Fix and Flip Trends Report 13 MANAGING RISK AND REWARD. DISCUSSION POINTS.
Let’s think a little more about the relationship between price and GM…
• The bottom (X) axis is the after-repair sales price.
• The left (Y) axis is the gross margin (the gap between what the investor paid and what they sold the property for).
• All things being equal, you probably want to do the least expensive project (less capital invested, less risk) and get the most GM that you can.
• While there is a strong relationship between neighborhood purchase price and GM, it’s not a perfect relationship… some areas might have relatively high GM with low purchases prices. Investors should seek them out.
• Conversely, some areas have high purchase prices (and commensurately more risk) while offering lower GM… a lot of risk without a lot of reward.
• So, which neighborhoods are the best bets?
2020 Fix and Flip Trends Report 14 AVERAGE AFTER-REPAIR SOLD PRICE VS. AVERAGE GROSS MARGIN
A few of the neighborhoods are slightly more or less desirable, but intense market competition has made them all get the about the same returns. Try for “market performance” and don’t try to be greedy when bidding. Top 37 Neighborhoods: 5+ purchased/sold F&F in last 24 months
$175 More Desirable Broadmoor Westside $150
Old Colorado City Pinecliff $125 Patty Jewett Palmer Park Cheyenne Stratmoor Mountain Ranch Valley Rustic Hills $100 Pikes Peak Stratton Garden Ranch Park Meadows
$75 Papeton Southborough Constitution Less Desirable Gross Margin (GM $000) Stetson Briargate $50 Antelope Hills E Deerfield Hills Meadows Villa South Wasson Loma
Countryside $25
$0 200 250 300 350 400 450
Sold Price $000
Analysis: Shorewood Real Estate. 2020 Fix and Flip Trends Report Data Source: Pikes Peak MLS 15 FIX AND FLIP MAP (DENVER METRO)
Source: Pikes Peak MLS 2020 Fix and Flip Trends Report 16 CASE STUDY
2020 Fix and Flip Trends Report CASE STUDY – “AFTER” PHOTOS
Source: ReColorado.com 2020 Fix and Flip Trends Report 18 CASE STUDY (METRO DENVER)
650 N Olive Street SF above 821 Basement 800 Total = 1621 (worst case) (best case) ACTUAL low med high high Units Total Sell price 500,000 540,000 580,000 490,000 upstairs + 1/2 of Sell side cost / title /closing 1,500 1,500 1,500 1,500 Flooring (sqft) $3.00 1231.5 3,695 downstairs Commissions 3.30% 16,500 17,820 19,140 16,170 Kitchen (<$450k ARV) $7,000.00 1 7,000 yes Interior Paint (sqft) $1.50 1621 2,432 yes Net received 482,000 520,680 559,360 472,330 rehab 72,912 70,412 67,912 64,000 Bath $3,500.00 1 3,500 upstairs Egress $3,000.00 2 6,000 make 2 BR downstairs Net after costs 409,088 450,268 491,448 408,330 Garage Door (1-unit) $400.00 1 400 yes Buy side 340,000 340,000 340,000 340,000 doubled it for sanding / Exterior Paint (sqft) $4.00 821 3,284 scraping loan points % 1.00% 3,400 3,400 3,400 1,700 Concrete (sqft) $10.00 - loan interest 2.00% 6,800 6,800 6,800 6,800 Furance $2,500.00 1 2,500 yes title + closing buy side 1.50% 5,100 5,100 5,100 2,550 Water Heater $1,000.00 1 1,000 probably Total buy side 355,300 355,300 355,300 351,050 Exterior Doors $300.00 0 - Interior Doors $80.00 2 160 basement Pre-tax profit 53,788 94,968 136,148 57,280 electrical panel is old, will Federal tax 35.0% 18,826 33,239 47,652 20,048 come up on buyer's State tax 5.1% 2,743 4,843 6,944 2,921 Electrical (inc fixtures) $1,000.00 2 2,000 inspection After tax profit 32,219 56,886 81,553 34,311 Plumbing $1,000.00 1 1,000 Windows $450.00 8 3,600 probably Notes from 5/26 Landscape/yard $1,000.00 1 1,000 - Charming block; many scrapes near by; full basement - Needs ext paint; probably needs roof; has 1 car garage Drywall/move walls $1,000.00 1 1,000 basement Bath, divide BR - painting brick is peelng and will need scrape / sand before re-paint add 2nd bath $7,000.00 1 7,000 sewer is below grade - old elec panel (Zinsco); full basement and OK ceiling height - - 1/2 of basement is finshed now; as 1 BR but could be 2 BR easily - - other 1/2 of basement is laundry and furnace; might be possible to add 2nd bath Subtotal 45,570 - mostly older windows Contingency 20% 27,342 - 1 good BR above ground and one that is tight. Old furnace TOTAL 72,912
Source: Ironton Investments, LLC 2020 Fix and Flip Trends Report 19 AGENDA
Metro-wide F&F Trends Recent Market Examples Retail Real Estate Trends
2020 Fix and Flip Trends Report RECENT MARKET SAMPLE
This ranch was purchased for nearly half of the list price! The finished product sold in just one day, and for $5k over asking.
Source: Pikes Peak MLS 2020 Fix and Flip Trends Report 21 RECENT MARKET SAMPLE This property was on the market for nearly 4 months before it was purchased for nearly $50k below original list price. Thought it’s a seller’s market, this great rehab still took over a month to sell.
Source: Pikes Peak MLS 2020 Fix and Flip Trends Report 22 DOM AND DISCOUNT Of the 500 rehabbed properties: 25% were bought at a premium and 54% were bought at a discount. Below is a snapshot of properties with a buy-side of just 1 DOM.
Sold at 5% premium to Ask price or more
Sold at 5% discount to Ask price or more
2020 Fix and Flip Trends Report 23 DOM AND DISCOUNT Sample projects with a 60+ DOM buy side – average 6% discount.
Sold at 5% premium to Ask price or more
Sold at 5% discount to Ask price or more
2020 Fix and Flip Trends Report 24 AGENDA
Metro-wide F&F Trends Recent Market Examples Retail Real Estate Trends
2020 Fix and Flip Trends Report KEY MESSAGES In the last twelve months, COS homes and condos both appreciated at 7%. While appreciation has slowed a bit, Denver Metro prices are at half this growth rate. COS is a stronger seller’s market than Denver regarding appreciation rates. Home inventory is up while condos inventory is down.
Metric Performance Home Condo Observations Average 2Q19 vs 2Q18: +6% -3% Prices had been growing 10% annually from ‘14 to ‘16. Historical rate ‘71 to ‘16 is Home Price 3Q19 vs 3Q18: +6% +6% 5-6% per year. Much of the recent above-average gain is due to the severe 4Q19 vs 4Q18: +7% +8% shortage of small (affordable) homes available to sell. The mix is slowly shifting to 1Q20 vs 1Q19: +10% +10% higher end properties. As expected, the rate of appreciation is slowing down, but 2Q20 vs 2Q20: +7% +7% still very strong. MOI 7/01/19: 1.4 0.9 MOI holds steady as inventory remains low. Even the largest condo segments are (Months of 10/01/19: 1.6 1.1 seeing MOI of 1-2. COS will remain a strong seller's market at lower price points Inventory) 1/01/20: 1.0 0.6 for at least another twelve months. 4/01/20: 1.0 0.8 7/01/20: 1.1 0.7 Number 2Q19 vs 2Q18: -1% -4% This past quarter saw the result of COVID. Condos sale count is fairing better Sold 3Q19 vs 3Q18: +4% -5% than that of homes, while it’s the opposite in Denver Metro. 4Q19 vs 4Q18: +7% -8% 1Q20 vs 1Q19: +4% -1% 2Q20 vs 2Q20: -11% -4% Inventory 7/01/19: 1,767 158 Inventory continue to stay historically low, especially for attached homes. This will 10/01/19: 2,055 188 continue to drive price increases on the low end. “Supply and Demand 101” predict 1/01/20: 1,264 104 inventories should increase. Inventory for the smallest 50% of homes has 4/01/20: 1,299 133 remained tight this year. Both home and condo inventories are significantly lower 7/01/20: 1,424 120 year over year. Under 7/01/19: 2,089 (54%) 259 (62%) Under contract is a leading indicator of future home sales. Under contract rates Contract 10/01/19: 1,841 (47%) 209 (53%) are increasing as mortgage rates lower. Both the number of properties under (U/C) 1/01/20: 1,323 (51%) 160 (61%) contract and the percentage of available properties that are under contract are 4/01/20: 1,804 (58%) 256 (66%) at highest levels in 15 months. 7/01/20: 2,519 (64%) 311 (72%)
Data Source: PPMLS; Shorewood analysis
2020 Fix and Flip Trends Report 26 INVENTORY VS. SALES SINCE 2007
We are seeing growth in both inventory and sales volume. As inventory begins to increase, low mortgage rates allow more purchases, so the market remains tight. This chart is only for single family homes; the condo chart looks very similar.
COLORADO SPRINGS (SINGLE FAMILY & PATIO HOMES) ACTIVE INVENTORY (TOP LINE) AND MONTHLY SALES (BOTTOM LINE), 2007 - 2020
7,000 Active Sold
6,000
5,000
4,000
3,000
2,000
1,000
0 Jul '11 Jan '11 Apr '11 Apr Jul '12 Feb '17 Feb '15 Feb '18 Feb '19 Feb '16 Oct '11 Feb '14 Jan '12 Aug'19 Jan '13 Jul '10 Apr '12 Apr Feb'20 Nov'19 Oct '12 Jan '10 Aug '17 Aug '15 Apr '10 Apr Aug '13 Aug '18 Aug '16 Jul '07 Jul '08 Nov '17 Jul '09 Nov '15 Nov '13 Nov '18 Aug '14 Nov '16 May '17 May '15 May '13 May '18 May '19 May '16 Nov '14 Oct '10 May '14 Jan '07 Jan '08 Jan '09 Apr '07 Apr Apr '08 Apr Apr '09 Apr May'20 Oct '07 Oct '08 Oct '09
Data Source: PPMLS; Shorewood analysis 2020 Fix and Flip Trends Report 27 MONTHS OF INVENTORY Inventory has steadily tightened since 2008. MOI on 7/04/20 was 1.1 for homes and 0.7 for condos. This is an incredibly strong seller’s market. It became a seller’s market in 2015. There is a lot of seasonality in MOI; the smallest number of homes are usually on the market in Dec/Jan, and the largest number of homes are usually available in late spring – early summer. Homes and condos mirror each other very closely.
COS MONTHS OF INVENTORY (MOI) Average MOI Whole Market Homes by Qtr Condos by Qtr 6 Buyer’s Market 5 Balanced Market 4 All properties 3 Seller’s Market Homes 2
1 Condos 0 2011 18Q1 19Q1 2012 2017 2015 2013 18Q2 2016 19Q2 18Q3 19Q3 2014 18Q4 19Q4 2010 20Q1 20Q2 2008 2009
Data Source: PPMLS; Shorewood analysis
2020 Fix and Flip Trends Report 28 Notes from the attorneys…
© 2020 Shorewood Source: Shorewood Real Estate analysis. Based on information from PPAR MLS and REColorado.com. Not all properties were listed and/or sold by Company. This representation is based in whole or in part on content supplied by the MLS. The MLS does not guarantee nor is it in any way responsible for its accuracy. Content maintained by the MLS may not reflect all real estate activity in the market. Does NOT include time share, mobile homes, or commercial.
2020 Fix and Flip Trends Report 29