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.
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?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.