Flipping Hits 10-Year High as Smaller Investors Sense Opportunity

Contributing Writer, B2R Finance | Real Estate Investment

By Kerry Curry, Contributing Writer, B2R Finance

Single-family property flipping profits reached a 10-year high in 2015, while the number of residential real estate flippers in the market reached its highest level since 2007.

Real estate data company RealtyTrac said 179,778 U.S. single-family houses and condos were flipped in 2015 — 5.5 percent of all single-family and condo sales, up from a 5.3 percent share in 2014.

The average gross flipping profit of $55,000 in 2015 represented an average gross return on investment of 45.8 percent, up from 44.2 percent in 2014 and up from 35.3 percent in 2005, according to RealtyTrac’s report. The report noted that flipping activity rose in 75 percent of U.S. markets last year.

“The increasing number of investors jumping on the flipping bandwagon reflects more broad confidence in the housing market among the masses,” Daren Blomquist, vice president at RealtyTrac, told B2R Finance.

Smaller investors play bigger role

“Investors willing to flip back near the bottom of home prices in 2012 and 2013 tended to be larger investors willing and able to take on more risk — more likely buying with cash,” he said. “Now we are seeing the flipping trend trickle down to smaller investors who are more risk-averse and less likely to have large amounts of capital for flipping.”

Although the total number of investors who completed at least one flip last year was at the highest level since 2007, the number of flips per investor was at the lowest level since 2008.

While the percentage of flips originally purchased with cash remains high — 70 percent in 2015 — it has decreased for five consecutive years from a high of 82 percent in 2010, Blomquist said. This suggests more investors are turning to lenders for funding.

2016 should be good year for real estate flipping

Blomquist said he expects to see residential property flipping continue to increase as a share of all home sales nationwide — particularly in the Southeast and parts of the Rust Belt that enjoy modest housing prices combined with strong housing fundamentals.

More overpriced markets — mostly in the West —will buck that national trend and likely witness flipping declines this year, he said.

Declining foreclosure inventory will affect some markets

The nation’s declining foreclosure inventory will hurt flippers in markets with a newer stock of housing, such as Las Vegas and Phoenix, RealtyTrac’s Blomquist said.

“But in markets where the stock of homes is older, flippers will often still be able to find distressed homes selling at a discount because of poor condition — even if they are not in foreclosure,” he said. “Markets in this vein include places like Baltimore and Pittsburgh.”

Markets with the highest average gross ROI on homes flipped in 2015 were Pittsburgh (129.5 percent); New Orleans (99.2 percent); Philadelphia (98.4 percent); Cincinnati (89.7 percent); and New Haven, Connecticut (89.6 percent), according to RealtyTrac.

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