Uncategorized April 13, 2022

Market Update April 13, 2022

Home flipping is at its highest level since 2006. What makes this fact interesting is that despite the dropping profit margins, we’re seeing a record amount of homes being flipped.

It is estimated that the amount of flipped homes grew by 26% in the year 2021 compared to 2020. (Data isn’t available yet for 2022). Aggregated data uses any home sold within 12 months of purchase to count as a “flip” – these types of properties comprised a total of 5.5% of all national homes sales in 2021.

So why are flips up in 2021 when profit margins are down to their lowest level in more than a decade?

According to ATTOM Real Estate Research, “Homes flipped in 2021 typically generated a gross profit of $65,000 nationwide, the difference between the median sales price and the median amount investors originally paid. At the current rate, the gross profit translates to a 31% return on investment compared to the original acquisition price, which is the lowest margin since 2008, according to researchers.”

The reason behind this is that expenses are down for flippers. Most flippers have been using their own capital to finance projects instead of relying on hard money loans that charge 12-18% interest plus (2% of the total loan upfront). It’s also taken less time to execute a flip, suggesting that less extensive—and less expensive—repairs have been needed to bring properties to the market.

This translates to less (or no) interest paid to lenders and quicker turn around due to less extensive repairs. (Whether less work translates to only “lipstick on the pig” or the fact that properties that need extensive repairs have been already all bought up, and the remaining inventory are houses that need less work but also present less profit – that, I don’t know). This means less profit in total – but in turn, flippers can churn out more properties.

Average Gross on a Flip: $65,000 (Buy price – Sales price) Doesn’t
include expenses
Average turn around time on a Flip: 153 days