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New Report: Is House Flipping Almost Dead?

by Tracy Royce on May 3, 2014 · 6 comments

  
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RealtyTrac is reporting that the rates of returns on house flips has risen, although the slowdown in price appreciation is making investors more cautious.

In their latest report, RealtyTrac is indiciating that 3.7% of all single family homes were sold as flips (as defined as any house that is re-sold with the intent of a profit within 6 months) in the first quarter of 2014.

As of the last quarter of 2013, their feedback reported that 4.1% of all SFR’s had been flips, so the gross amount has fallen. On the flip side (pun intended), it showed that there were higher profit margins being made.

The average re-sale price of these single family homes was almost $56,000 higher than the investors original price. According to their data, it raised the gross profit on these flips (on average) up 7.8%.

Is House Flipping Dead?

With the home prices raising, less short sales and foreclosures to pick from, and a slowdown in buying, many investors may be backing out. When the money is easy to make, made nearly purely based off speculating an appreciating market (and getting lucky), remaining investors will have to be more cautious.

The VP of RealtyTrac thinks that’s good, though, stating that it’s better that the housing recovery is “behaving much more rationally than the last housing boom…”

For the speculators and less-experienced investors, the lack of a sure-fire escape plan leaves them too scared to continue to purchase and flip, not wanting to take on the risk.

Related: How to Buy a Foreclosure : The Comprehensive Guide to Buying a Foreclosed Home

Creating Value

For those investors remaining, they’re having to create value with a thorough rehab, if not full out renovations and permitted additions. Dually, the renovations have to be done strategically and in such a way to maximize ROI.

Overall, the median return on a flip was 13% for an investor, as calculated by RealtyTrac. The top areas (with a minimum of 1M population at least 25 flips done the first quarter) were Miami, Las Vegas, San Diego, Jacksonville, and New York.

What do you think? Do you see more investors backing out in your area? Are the ones left seeming to make better spreads?

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{ 6 comments… read them below or add one }

Hannah Ash May 4, 2014 at 4:34 am

This is very helpful idea’s, thanks for sharing this info!keep it up always.Looking forward for your next post.

Reply

Mark Ferguson May 4, 2014 at 9:55 am

I am buying more flips now than ever. Most of them are not short sales or reos, but estates or default market sales. An appreciating market creates opportunity in regular sales because sellers have equity on homes that need a lot of work. And some realtors don’t keep up with rising prices and underprice their properties.

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Tracy May 5, 2014 at 11:29 am

Nice, Mark. Thanks for sharing. I’m sure many people reading this post think it can’t be done.

Reply

Shaun May 6, 2014 at 10:49 pm

God I hope this true and starts getting published in some mainstream media soon.
Still have a fair number of dolts overpaying for everything around me.
Most everyone I know that knows what they are doing has had to adjust what they consider an acceptable margin in order to buy anything for a good 2 years now and haven’t seen a change in that yet.

Reply

Tracy Royce May 9, 2014 at 5:08 pm

Then continue to hang out with those that “get it” an adjust….and ignore all the rest. Thanks for posting!

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Matthew Coates May 9, 2014 at 4:22 pm

Flipping is far from dead. I’m working with a number of investors and we are finding deals on and off MLS. This week I locked up a property in north Phoenix listed for $250k. Got it pending for $236k and the home will sell for over $325k easily. Have to work hard to find , but they are there.

Also starting to work in the direct mail arena.

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