Five percent of all single family home and condo sales in the third quarter of 2015 were “flipped” within a 12-month period — that’s up 18 percent from a 4.3 percent share one year ago, according to RealtyTrac’s latest update on home flipping.
The trend seems to have reversed. That 4.3 percent share in the third quarter of 2014 represented the lowest quarterly level going back to the first quarter of 2000, the earliest RealtyTrac has data on flipped homes.
With a reduced inventory of “flippable” homes and rising home prices, investors are having to get more creative, says Daren Blomquist, vice president at RealtyTrac.
Jumping Back on the ‘Flipping Bandwagon’
“After curtailing flipping activity last year due to slowing home price appreciation and shrinking inventory of flip-worthy homes, real estate investors have started to jump back on the flipping bandwagon in 2015,” said Blomquist. “On the acquisition side, investors are finding creative ways to pinpoint potential flips in the off-market arena, and on the disposition side investors have a bigger pool of potential buyers thanks to a surge in FHA (Federal Housing Administration) buyers this year, many of them first-time buyers looking for starter homes.”
As surge in FHA buyers signals a rebound in first-time home buyers as well. Average mortgage rates are holding below or at 4 percent, which is creating more demand. Findings bargains in areas with moderate price gains is key to house flipping.
The average gross flipping profit was $62,122 for completed home flips in the third quarter. That’s down slightly from an average gross flipping profit of $62,521 in the second quarter — but up slightly from an average gross flipping profit of $61,781 in the third quarter of 2014. The difference between the purchase price and the flipped price does not include rehab costs and other expenses incurred, which flipping experts estimate typically run between 20 percent and 33 percent of the property’s after repair value.
The average gross return on investment (ROI) — the average gross profit as a percentage of the average original purchase price — was 33.8 percent for completed home flips in the third quarter, down from 34.4 percent in the previous quarter but up from 32.7 percent in the third quarter of 2014.