Even as more investors are flipping homes, they’re seeing less profits in return.
High home prices, increasing renovation costs and a skimpier supply of distressed properties are making it more expensive to get in the game, even though demand for move-in ready homes is high.
Single-family homes and condos flipped in the third quarter of this year brought an average gross profit of $66,448 per flip, representing a 47.7 percent return on investment for flippers, according to Attom Data Solutions, a real estate data and analytics company. Attom defines a flip as a home bought and sold in a 12-month period.
That return is down from 48.7 percent in the second quarter and from 51.2 percent in the third quarter of last year. It is the lowest average gross flipping return on investment since the middle of 2015.
“Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins,” said Daren Blomquist, senior vice president at Attom Data Solutions.
Despite lower returns, home flipping is still a popular business. Close to 49,000 homes were flipped nationwide in the third quarter, unchanged from a year ago. One big shift, however, is that there are more investors flipping, and they’re each flipping fewer homes. The ratio of flips per investor, just 1.25, is the lowest since 2008.
“A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip,” Blomquist said.
That may be, but Washington, D.C., which is not exactly a weak market, came in with the highest flipping rate in the nation. It was followed by Nevada, Tennessee, Louisiana, Alabama and Arizona.
Metropolitan areas that saw the highest flipping returns were Pittsburgh, Baton Rouge, Louisiana, Philadelphia, Baltimore and Cleveland.
High-end real estate agent Tony Giordano, of the Opulent Agency, said he has multiple flipper clients right now, but the ones who get the highest returns are the builders. They tear down homes and start from scratch.
“The key I see with your most common type flipper is that the carrying costs can be much lower today than in previous hot markets. Cost of construction is higher, but time to flip lower,” Giordano said.
That may be why the number of flippers continues to grow. Technology is also making it easier for flippers to find the services they need and at the same time keep costs low.
“Even Amazon plays a part in how much faster and cheaper you can find, purchase, deliver and flip!” said Giordano.