Flipping Levels at an 8 Year High: These 5 U.S. Markets Are Seeing the Highest ROIs
In a study just released today, RealtyTrac shares information about flipped properties* in its Q4 2015 U.S. Home Flipping Report. A total of 5.5 percent of all single family homes and condos, or 179,778 single family homes and condos, were flipped in 2015. This represents the first annual increase in shares of homes flipped following four consecutive years of decreases.
Want more articles like this?
Create an account today to get BiggerPocket's best blog articles delivered to your inboxSign up for free
Of 110 metropolitan areas studied, 75 percent, or 83 markets, showed increases in the share of homes flipped, with a total of 110,008 investors or entities completing at least one flip — the highest number of flippers since 130,603 in 2007.
“As confidence in the housing recovery spreads, more real estate investors and would-be real estate investors are hopping on the home flipping bandwagon,” said Daren Blomquist, senior vice president at RealtyTrac.
12 Markets Beat Out 2005 Flipping Highs
The U.S. saw a peak in the number of active home flippers back in 2005, when a whopping 259,192 investors flipped at least one home. Flipping levels of 2015 for the most part did not approach that high, except for in 12 of the 110 metro areas studied, including:
- Pittsburgh (19 percent above 2005 levels)
- Memphis (18 percent above 2005 levels)
- Buffalo, New York (12 percent above 2005 levels)
- San Diego (4 percent above 2005 levels)
- Seattle (4 percent above 2005 levels)
- Birmingham, Alabama (4 percent above 2005 levels)
- Cleveland (3 percent above 2005 levels)
Markets with the largest year-over-year increases in flips included:
- Lakeland, Florida (up 50 percent)
- New Haven, Connecticut (up 45 percent)
- Jacksonville, Florida (up 41 percent)
- Homosassa Springs, Florida (up 40 percent)
- Akron, Ohio (up 37 percent)
The market with the highest level of homes flipped nationwide was Miami, with flips representing 8.6 percent, or 10,658, of all home sales for the year — up 4 percent from 2014.
5 Markets With the Highest Flipping Profits
The gross profit** of homes flipped across the U.S. was the highest since 2005, at an average of $55,000 nationwide. This number represents an average gross return on investment (ROI) of 45.8 percent, up from 44.2 percent in 2014.
The markets with the highest average gross ROI on flipped homes were:
- Pittsburgh (129.5 percent)
- New Orleans (99.2 percent)
- Philadelphia (98.4 percent)
- Cincinnati (89.7 percent)
- New Haven, Connecticut (89.6 percent)
States with the highest share of flips in 2015 were:
- Nevada (8.8 percent)
- Florida (8.0 percent)
- Alabama (7.4 percent)
- Arizona (7.1 percent)
- Tennessee (6.9 percent)
What Does This Mean for Investors?
Investors are likely jumping (back) on the flipping bandwagon in part because of increased confidence in a spreading housing market recovery. For more information on how markets across the U.S. performed in 2015, be sure to check out the BiggerPockets Real Estate Investment Market Index. Seeing as 2015 saw the lowest ratio of flips per investor since 2008 (1.63), it is likely that markets are seeing more inexperienced flippers attempting to begin in this niche.
“More inexperienced home flippers with a smaller financial cushion could be a sign of an over-speculative market, but the data indicates that flippers in 2015 continued to operate within relatively conservative margins,” observed RealtyTrac senior vice president Daren Blomquist, “Homes flipped in 2015 were on average purchased at a 26 percent discount below estimated market value and re-sold by the flipper at a 5 percent premium above estimated market value.”
Still, only time will tell whether large increases in home flips will spell trouble for various U.S. markets.
“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate. “The problem with a rise in home flipping is that these sales artificially inflate home prices, making housing even less affordable for buyers and increasing the risk of a bubble.”
*For the purpose of this study, a flipped home was defined as a property sold in an arms-length sale for the second time within a 12 month period.
**Gross profit indicates the difference between the purchase price and flipped price of the property, not including rehab costs and other expenses incurred.
Investors: What are you seeing in your market? Do you think flipping will remain strong in the coming years?
Leave your comments below!