At the height of the housing bubble a $200,000-town house “flipped” for triple the price after light primping -- and wound up a short sale awhile after.
Flipping – defined as an arms-length sale twice within 12 months -- is coming back and delivering record high profits in Pennsylvania, Ohio, Louisiana and many metro areas. The gross flipping return on investment (ROI) in 2016 reached 49.2 percent, the highest since 2000, according to new research by ATTOM Data Solutions.
“Home flipping was hot in 2016, fueled by the low inventory of homes in sellable or rentable condition along with a flood of capital -- both foreign and domestic -- searching for the returns and stability available with U.S. real estate,” Daren Blomquist, senior vice president of ATTOM, said in a recent press release.
Places like Pennsylvania, which enjoyed a gross flipping return on investment of 108.3 percent last year, have “more inventory of homes available to purchase at a discount and to add value,” Blomquist tells Financial Advisor. The past hasn't vanished though. These markets are hot partly because foreclosures still linger there, he adds. “But mostly it is because of older housing stock that may not be as appealing to the modern buyer in its current state.”
Remodeled with more open floor plans and bigger kitchens, says Blomquist, these properties, also found in the Rust Belt and Southeast, are more conducive to flipping because even with the markup that comes with a flip, they're still “affordable to first-time home buyers or more likely to provide cash flow to rental property investors.”
Compared with McMansions, these single-family houses and condos have smaller foot prints and are older. In 2016, the median square footage of homes flipped was 1,422 and median age was 37 years old. They're also selling for a lot less money. Total homes flipped in 2016 only reached a median selling price of $189,900, with a gross flipping profit of $62,624 atop the median purchase price of $127,276. As such, they make anemic chum for the sharks of Wall Street.
Credit also has fueled flippers, jumping to 19 percent in estimated dollar volume for home flip purchases, or $12.2 billion, for flips completed in 2016 -- “a nine-year high,” according to ATTOM. Although the money is available nationwide, “it is chasing the best returns so it is also going to gravitate to the markets that are the most profitable for home flipping,” he says. “We are also seeing a higher share of the flipped homes sold to FHA buyers, with that share reaching a four-year high of 19.6 percent in 2016.”
