Home Flips and Profits on the Rise

Contributing Writer, B2R Finance | Real Estate Investment

By Kerry Curry, Contributing Writer

Home flipping rose 20 percent in the first quarter of 2016 over the fourth quarter of 2015, although it increased a more modest 3 percent from the period a year-ago.

RealtyTrac said 6.6 percent (43,740) of homes or condo sales in the first quarter of 2016 were flips—the highest rate of residential property flips since the first quarter of 2014 when 6.9 percent were flipped properties.

Real estate investors buying residential properties to renovate and flip realized an average gross profit of more than $58,000 in the first quarter, the highest average gross profit since the fourth quarter of 2005 when there were profits of $59,100.

Home Flipping Profit Trends

Real estate investors are buying the residential properties they flip at an average 27 percent discount below full market value, according to RealtyTrac, and selling them at a 6 percent premium above full market value, accounting for the strong profit numbers in the Q1 2016 report.

The average gross profit is the difference between the purchase price and the flipped price. It doesn’t include rehab costs and other expenses that industry experts estimate run between 20 and 33 percent of the property’s after-repair value.

RealtyTrac defines a home flip as a property sold in an arms-length sale for the second time within a 12-month period based on publicly recorded sales deed data.

Cash Still King

Flippers still prefer to buy with cash—71 percent of flips completed in Q1 2016 were cash purchases. In contrast, only 37 percent of flips were purchased with cash during the peak for home flipping in Q1 2006.

Home Flip Acquisition Trends

“After faltering in late 2014, home flipping has been gaining steam for the last year and a half thanks to falling interest rates and a dearth of housing inventory for flippers to compete against,” said Daren Blomquist, senior vice president at RealtyTrac.

Flipping Reaches All-time Highs in Nine Metros

Although flipping nationally is near its historic norms, it reached all-time highs in nine of 126 metropolitan statistical areas analyzed: Baltimore; Buffalo, New York; Huntsville, Alabama; New Orleans; York-Hanover, Pennsylvania; Seattle; Virginia Beach, Virginia; Bakersfield, California; and San Diego.

When inventory is low, residential property investors find it advantageous to flip homes if they can find properties at good discounts as the low inventories translate into high buyer demand for their renovated flips.

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