- Austin Rutherford told his 700,000 followers he will likely take a loss on a recent flip in Ohio.
- Fellow TikToker Jeremy Mathis says he's factoring in 10% price drops to prospective deals in Miami.
- The market for flips has cooled down significantly due to reduced buyer demand and rising mortgage rates.
Flippers are facing the music as the housing market begins to show signs of cooling down.
Real estate investor Austin Rutherford, who has over 700,000 followers on TikTok, has talked at length about the opportunities for wealth in real estate investing since the start of the pandemic. But, in a recent video, he breaks down how his latest deal will likely result in a $30,000 loss.
"There is a real downside to this business," he told Insider.
Rutherford purchased the Hilliard, Ohio home last year for $248,000 and says he put in between $5,000 and $10,000 worth of work. Now, he's receiving offers for only $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 major corporations — are facing difficult market conditions as increasing mortgage rates freeze out buyers. The iBuyer firm OpenDoor has been losing money on homes in pandemic real estate hotspots Austin, Atlanta, and Phoenix. More recently, competitor Redfin announced that it was getting out of the flipping game and was laying off its 13% of its staff. And then in other instances, some flippers are turning to deep-pocketed investors to bail them out.
Flipping returns have also decreased 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, the ROI for house flipping has fallen precipitously from the 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 that'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 try and make some money with a whole bunch of headaches," he told Insider.
Flippers see home values sliding
To also help illustrate the quickly-changing real estate market dynamics, Rutherford pointed to another one of his rehab projects — a four-bedroom house in Pickerington, Ohio where the value has slid in six months. In June, the home 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 that after putting in over $20,000 worth of renovations, including brand new kitchen appliances, he is close to accepting an offer for just $320,000.
Another TikTok investing personality, Jeremy Mathis, who invests with his twin brother, is witnessing similar signs of a slowdown in demand on rehabbed properties.
Florida-based Mathis purchased a 3-bedroom, 3-bathroom property in Fort Worth, Texas for $340,000 in June and spent $45,000 on renovations, including new floors and kitchen appliances.
Mathis and his brother were hoping to get $450,000 for the home based on projections from June. Instead, they listed in October and have subsequently dropped the price about every 10 days, where they've now lowered the ask to $399,000. At this point, Mathis says they just want to get rid of it.
It's a much gloomier picture compared to last year, Mathis says, when "people were getting above asking price when the houses were not fixed up."
"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, projecting them to lose at least that much in their appraised value as the market continues to slide.
Rutherford remains optimistic about real-estate investing overall and says hard times actually provide opportunities for committed investors.
"You learn a lesson in every deal, I've got a buddy that lost $100,000 on his first deal and now he's a multimillionaire," he said.