Your House Flipping Year End Update

As 2014 draws to a close, it’s time to take a look at just how successful the house flipping market was this year.

On the whole, the US housing market cooled down substantially in 2014. While the numbers aren’t as sexy as they were in 2013, the cool off is a good thing for the country. It means that the housing market is stabilizing and that we’re not on track for another collapse. Home prices have gone up at a nice, steady rate this year, and rent prices are also on the rise. New home construction hasn’t yet caught up to demand, so inventories remain low, but they should stabilize in 2015.

The lack of new construction has led to house flippers finding the most success when renovating aging homes in established neighborhoods. Another successful approach has been focusing on neighborhoods that are gaining appeal in popular metropolitan areas like Los Angeles, Austin, and San Francisco. Homes that are being flipped for the highest returns are those initially purchased for between one million and two million dollars. Homes in that price range earned an average gross return of 45% in the third quarter of 2014, which goes to show that the best ROIs this year were in the luxury market, and that is likely to continue into 2015.

According to Realty Trac, home flips this year have taken longer than they did in 2013. In the third quarter, home flips took 52 days more than they did in the same quarter of 2013. This is another indicator that the housing market is slowing down. Despite that slowdown, though, flippers are earning record profits. In Los Angeles, for example, flippers made an average gross profit per flip of $137,000.

House flipping in 2014 has become the purview of professionals. Many people who turned to house flipping in 2012 and 2013 when foreclosures saturated the market have since turned to other types of investments. As a result, house flips currently make up 4% of all home sales, which is the historic norm.

Looking ahead to 2015, we expect the trends of 2014 to continue well into the new year. Home prices will continue to go up at a low, steady rate. Rent prices will also increase, so as buyer confidence improves, more millennials who have been avoiding buying a new house may return to or enter the housing market for the first time. As a result, we expect the most housing growth to happen in metropolitan areas, particularly young, up-and-coming suburbs just outside of major city limits.

Los Angeles, San Jose, Phoenix, Miami, and San Francisco will continue to offer excellent fix and flip opportunities to investors who have the necessary funds to bring to the table. Though these locations require large up front investments, we expect them to remain relatively low risk because people will continue flocking to these areas.

We also believe that buy and hold investing will become increasingly popular next year as rent prices continue to surge around the country. A buy and hold investment made in 2015 and held for four to six years should be ideally timed in accordance with the cyclical nature of the housing market.