AgentIndustry News

Flipping is flopping, says RealtyTrac

Available properties to flip are on the decline despite an uptick in ROI and profitability

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

Enjoy the Connect experience from your computer, laptop or tablet! Watch Connect now.


Takeaways:

  • Flipping hit a peak in early 2006, when 8 percent of all single-family home sales were flips.
  • Last quarter, 30,013 single-family homes were flipped, accounting for only 4.5 percent of all single-family homes sold.
  • The most profitable areas for flipping were in Jacksonville, Florida; Dayton, Ohio; Baltimore; St. Louis; and Memphis, according to RealtyTrac’s report.

Despite an increase in average property flipping profits, flipping is on the decline, according to RealtyTrac’s second-quarter U.S. Home Flipping Report.

RealtyTrac, which has been tracking these metrics since 2000, reported that flipping hit a peak in early 2006, when 8 percent of all single-family home sales were flips. But we’ve been backsliding ever since.

Last quarter, 30,013 single-family homes were flipped, accounting for only 4.5 percent of all single-family homes sold during that period. That’s down from 5.5 percent in the first quarter, and down 4.9 percent from second-quarter 2014.

image006

3 essential tools that will 10X your real estate marketing
Smart landing pages, a synchronized database and automation generate results READ MORE

According to RealtyTrac, the decline may be attributed to fewer foreclosure deals becoming available to flippers and some flippers taking longer to renovate or rehab their purchases.

Home flippers should proceed with caution in the next six to 12 months as home price appreciation slows and a possible interest rate increase could shrink the pool of prospective buyers for fix-and-flip homes." - Daren Blomquist, vice president at RealtyTrac

Foreclosures accounted for 41 percent of all homes flipped in the second quarter, dropping to a 7.5-year low. And flips completed in the second quarter took an average of six months, rising to an eight-year high.

At the same time, however, the average gross profit — the difference between the purchase price and the flipped price, excluding rehab and other costs — for completed flips in the second quarter was $70,696, up from $67,753 in the first quarter and up from $49,842 during the same period a year ago.

The average gross return on investment (ROI) — the average gross profit as a percentage of the average original purchase price — also increased (although slightly) to 35.9 percent from 35.6 percent in the first quarter and from 23.4 percent in second-quarter 2014.

The average gross return on investment on flips reached a 10-year peak of 44.9 percent in second-quarter 2013.

But flipping is not always profitable, if you consider that flips on low-end homes priced below $50,000 actually yielded negative returns in the second quarter, said Daren Blomquist, vice president of RealtyTrac.

“The fewer foreclosure deals and longer flipping timelines that we see in the data demonstrate that flippers are getting squeezed on both sides of the profit equation,” Blomquist said.

“Experienced flippers will often need to enter into higher-risk markets with less solid economic fundamentals to chase better yields.”

The most profitable areas for flipping were in Jacksonville, Florida; Dayton, Ohio; Baltimore; St. Louis; and Memphis, according to RealtyTrac’s report.

“While average flipping returns are up substantially from a year ago at the national level and in moderately priced markets such as Miami, Atlanta, Phoenix and Minneapolis, flipping returns are softening in some of the higher-priced markets such as San Francisco, Seattle, Denver and Los Angeles,” Blomquist said.

Blomquist offered some advice for property flippers in the short term: “Despite the rise in flipping returns in the second quarter, home flippers should proceed with caution in the next six to 12 months as home price appreciation slows and a possible interest rate increase could shrink the pool of prospective buyers for fix-and-flip homes,” he said.

Email Amy Swinderman.