- Austin Rutherford told his 700,000 followers that he would probably take a loss on a recent tour in Ohio.
- Fellow TikToker Jeremy Mathis says he’s taking 10% price cuts on prospective deals in Miami.
- The market for flips has cooled significantly due to reduced buyer demand and rising mortgage rates.
Flippers face the music as the housing market begins to show signs of cooling.
Real estate investor Austin Rutherford, who has more than 700,000 followers on TikTok, has spoken at length about the opportunities for wealth in real estate investing since the start of the pandemic. But in a recent video, he shares how his latest deal will likely result in a $30,000 loss.
“There’s a real downside to this business,” he told Insider.
Rutherford bought the Hilliard, Ohio home for $248,000 last year and says he put in between $5,000 and $10,000 worth of work. Now he’s receiving offers for just $260,000, which after closing costs and agent fees will likely put him in the red.
Flippers across the country – from small-time independent operators to large corporations – are facing tough market conditions as rising mortgage rates freeze out buyers. The iBuyer firm OpenDoor lost money on homes in pandemic real estate hotspots Austin, Atlanta and Phoenix. More recently, competitor Redfin announced it was getting out of the pinball game and laying off 13% of its staff. And then, in other cases, some flippers turn to deep-pocketed investors to bail them out.
Flipping returns have also declined since last year. The typical return on investment in the second quarter was 29%, down from 33% this time last year, according to Attom Data Solutions. Overall, home flipping ROI has fallen sharply from a decade-high 53% in 2016.
In Rutherford’s original video, many of his followers encouraged him to keep the property as a rental, but he says it’s another lesson for a changing market.
“I’d rather take the loss and move on and go find another deal and make it back rather than trying to make money with a whole bunch of headaches,” he told Insider.
Flippers see home values slide
To also help illustrate the rapidly changing real estate market dynamics, Rutherford pointed to another one of his rehab projects — a four-bedroom house in Pickerington, Ohio that saw the value drop in six months. In June, the house was appraised for $355,000, without Rutherford lifting a finger. According to public records reviewed by Insider, the home was purchased as part of a multi-property portfolio sale that closed last December for $1.9 million.
Rutherford said after putting in more than $20,000 in renovations, including brand new kitchen appliances, he is close to accepting an offer for just $320,000.
Another TikTok investment personality, Jeremy Mathis, who invests with his twin brother, sees similar signs of a slowdown in demand for rehabbed properties.
Florida-based Mathis bought a 3-bedroom, 3-bath Fort Worth, Texas property in June for $340,000 and spent $45,000 on renovations, including new flooring and kitchen appliances.
Mathis and his brother hoped to get $450,000 for the house, based on projections as of June. Instead, they listed in October and the price dropped about every 10 days after that, where they have now lowered the ask to $399,000. At this point, Mathis says they just want to get rid of it.
It’s a much bleaker picture compared to last year, Mathis says, when “people were getting above the asking price when the houses weren’t fixed.”
“We’re not in that market anymore,” he told Insider.
Now, in prospective deals, Mathis says he’s factoring in a 10% “buffer” with homes, predicting they’ll lose at least that much in appraised value as the market continues to slide.
Rutherford remains optimistic about real estate investing in general, saying that tough times actually present opportunities for dedicated investors.
“You learn a lesson in every trade, I have a mate who lost $100,000 on his first trade and now he’s a multi-millionaire,” he said.