Signs within the Market Cycle: Home Flipping slows substantially
In Florida, the number of homes flipped and profitability of those flips varied by metro area. In Miami, flipping was down 16 percent year-to-year, according to ATTOM, and down 13 percent in Tampa-St. Petersburg.
"The market is incredibly hot right now, making it very hard to find homes to flip – but there is an opportunity for flippers to move into the new construction market," says Alex Sifakis, president of JWB Real Estate Capital, a real estate investment company based in Jacksonville, Florida, where the home flipping rate decreased 7 percent year-to-year.
"We will flip about 200 homes this year, but build about 400 new homes – the vast majority of those not in subdivisions but in older neighborhoods where we are buying teardowns or long-vacant lots," he adds.
Florida also made ATTOM's list based on the average number of days it takes to flip a home. On the fast-to-flip side, it took 99 days in Jacksonville. However, Naples – at 220 average days to flip a home – made the list of cities where flipping takes time.
"Home flippers have to adapt to the changing market if they want to find inventory," says Sifakis. "In 2017, JWB bought a little over 700 properties, and less than 20 percent came from the MLS (Multiple Listing Service). The rest we had to source ourselves through online marketing, mailers, signage, various local and online auctions, wholesalers, etc."
Sifakis says that his company's monthly budget to find homes was $0 four years. "Today it is $20,000 a month – and climbing."
"The 2018 housing market is a double-edged sword for home flippers," says Daren Blomquist, senior vice president at ATTOM Data Solutions. "Rapidly rising home prices boosted by low available inventory of homes for sale or for rent are padding profits at the back end when flippers sell – but those same market realities are eroding flipping returns at the front end by forcing flippers to pay more to acquire homes to flip."
Lin He, a real estate investment company owner based in Orange County, California, says he's noticed a change in the investors who choose to flip, with a lot of new investors entering the market even as more seasoned investors are holding back and becoming more cautious, sometimes choosing to invest farther away from their core market or putting money into some type of non-residential real estate investment.
National flipping statistics
- The 48,457 homes flipped in the first quarter represented 6.9 percent of all home sales during the quarter, up from 5.9 percent in the previous quarter and unchanged from a year ago – the highest home flipping rate since Q1 2012.
- Homes flipped in Q1 2018 sold at an average gross profit of $69,500, up from an average gross flipping profit of $68,250 in the previous quarter and $66,287 in Q1 2017. ATTOM says it's the highest average gross flipping profit since it began tracking flipping in Q1 2000.
- The average gross flipping profit translated into an average 47.8 percent return on investment (ROI) – a nearly three-year low – compared to the original acquisition price, down from a 48.9 percent average gross flipping ROI in Q4 2017 and 50.3 percent in Q1 2017.
- An increasing number of flipped homes require financing: 35.7 percent in the first quarter compared to 35.3 percent the quarter before and 33.5 percent in 3Q 2017. However, "Wall Street has become more comfortable with the fix-and-flip space because they now have access to four years of performance data, and they've actively watched the development of this asset class," says Matt Humphrey, co-founder and CEO of LendingHome, a fix-and-flip lender.
- Total estimated dollar volume of financing for homes flipped in Q1 2018 was $3.8 billion, down from $3.9 billion in the previous quarter and down from $4.0 billion in Q1 2017.
- FHA (Federal Housing Administration) loans used for flips dropped to a 10-year low. Of the 48,457 U.S. homes flipped in Q1 2018, 15.9 percent were backed by an FHA loan, down from 16.1 percent in the previous quarter and 19.2 percent year-to-year.