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U.S. home flipping returns drop to nearly four-year low.

Byline: Staff Report

U.S. home flipping returns drop to nearly four-year low

ATTOM Data Solutions, has released its Q2 2018 U.S. Home Flipping Report, which shows that homes flipped in the second quarter of 2018 yielded an average gross return on investment of 44.3 percent, down from 47.8 percent in the previous quarter and down from 50.0 percent in Q2 2017 to the lowest average gross flipping ROI since Q3 2014.

The report shows a total of 48,768 U.S. single family homes and condos were flipped in the second quarter of 2018, a home flipping rate of 5.2 percent of all sales down from a 6.6 percent home flipping rate in Q1 2018 and down from a 5.4 percent home flipping rate in Q2 2017.

Homes flipped in Q2 2018 sold for an average of$65,520more than what the home flipper purchased them for, down from an all-time high average gross flipping profit of$69,500in the first quarter and down from an average gross flipping profit of$69,000a year ago. The average gross flipping profit in the second quarter was the lowest since Q2 2016 a two-year low.

"Fewer distressed sales are limiting the ability of home flippers to find deep discounts even while rising interest rates are shrinking the pool of potential buyers for flipped homes," saidDaren Blomquist, senior vice president at ATTOM Data Solutions. "These two forces are squeezing average home flipping returns, pushing investors to leverage financing or migrate to markets with more distressed discounts available to achieve more favorable returns."

32 percent of home flips purchased via distressed sale, down from peak of 68 percent

Of homes flipped in Q2 2018, 32.3 percent were purchased by the home flipper via a distressed sale either in foreclosure or bank-owned, down from 35.8 percent the previous quarter and down from 38.7 percent a year ago. The peak in distressed sales purchases by home flippers was 68.2 percent in Q1 2010.

States with the highest share of Q2 2018 home flips purchased via a distressed sale wereNew Jersey(64.1 percent);Delaware(60.3 percent);Indiana(55.4 percent);Maryland(52.8 percent); andNew York(48.4 percent).

"The business of adding some superficial cosmetic upgrades to a distressed purchase and then selling for a profit is no longer an option," saidJeff Pintar, founding partner and CEO atPintar Investment Company, which flips homes inCalifornia,NevadaandGeorgia. "Home buyers are expecting quality product throughout the entire property parcel. Buyers have plenty of choices and only the top-quality homes are selling. This means investors need to fine tune their operations and pricing models and deliver model-like homes in order to compete. In our markets, we see home buyers continuing to be willing to pay more for better quality this is first time and move up buyers."

Among 140 metropolitan statistical areas with at least 50 flips in Q2 2018 and a population of at least 200,000, those with the highest share of Q2 2018 home flips purchased via distressed sale wereAtlantic City, New Jersey(71.0 percent);El Paso, Texas(70.5 percent);Trenton, New Jersey(65.2 percent);Virginia Beach, Virginia(60.7 percent); andNew York, New York(56.5 percent).

39 percent of home flips purchased with financing

Among home flips completed in Q2 2018, 38.6 percent were purchased by the home flipper with financing, up from 36.8 percent in the previous quarter but down from a nearly 10-year high of 39.6 percent in Q2 2017.

"Acquisition prices have been creeping up, and it's now more difficult for investors to buy with cash than previously, but high prices are not the only reason flippers are turning to financing," saidRobert Greenberg, chief marketing officer withPatch of Land, a peer-to-peer lending marketplace for real estate investors. "We see many borrowers coming to us simply for the ability to make more money. Financing can be the answer to making more profit overall: an investor that nets$30,000per flip after paying$5,000to$10,000for financing costs can make$90,000on three flips with the same amount of cash required to make$40,000on a single flip. For some experienced investors, it's possible to do 20 to 30 flips per year with financing versus 10 or less using all cash."

States with the highest share of flips purchased with financing wereRhode Island(63.8 percent);Colorado(57.1 percent);New Hampshire(53.4 percent);Minnesota(50.2 percent); andWashington50.0 percent).

Among 140 metropolitan statistical areas with at least 50 flips in Q2 2018 and a population of at least 200,000, those with the highest share of flips purchased with financing wereFort Collins, Colorado(66.7 percent);Colorado Springs, Colorado(66.0 percent);Providence, Rhode Island(60.3 percent);Greeley, Colorado(59.6 percent); andSeattle, Washington(54.6 percent).

"It has gotten tougher and tougher to flip homes in theColoradomarket. Not only is the competition fierce, but home prices continue to rise," saidMark Ferguson, a real estate broker, investor and founder ofInvestFourMore. "I flip from 10 to 20 houses at one time, and even though I use financing it takes more money to flip when prices are higher. I have thought about moving to a cheaper market, but I loveColoradoand I am doing everything I can to make it work here. I used to pay from$50,000to$100,000for most of my house flips, and now I am paying$150,000to$250,000for my flips with not much more profit. My average profit in the past after all expenses has been around$32,000, and this year it is closer to$40,000."

Among 1,451 U.S. zip codes analyzed in the report with at least 10 flips during the quarter, those with the highest share of flips purchased with financing were 80923 inColorado Springs, Colorado(85.7 percent); 85006 inPhoenix, Arizona(84.6 percent); 98033 inKirkland, Washingtonin theSeattlemetro area (84.6 percent); 80525 inFort Collins, Colorado(84.2 percent); and 20002 in theDistrict of Columbia(81.8 percent).

Highest gross flipping returns inLouisiana,Pennsylvania,Ohio

States with the highest average gross flipping ROI in Q2 2018 wereLouisiana(102.5 percent),Pennsylvania(100.3 percent),Ohio(81.4 percent),Maryland(76.1 percent), andTennessee(74.9 percent).

"Flipping in the Rust Belt continues to provide solid returns and continues to be a viable investment strategy. But the investor must provide a great product, new mechanicals, new kitchens and baths with today's modern open concepts and bright light finishes when they do these house sell fast," saidJosh Cantwell, CEO at Strategic Real Estate Coach and fix-and-flip lenderFreeland Ventures. "The key now is finding great deals. But since we're in the Rust Belt there's plenty of off-market sellers with aged properties and deferred maintenance looking to sell below market value. Investors have to be better marketers now more than ever to beat their competition to those deals."

Among 140 metropolitan statistical areas with at least 50 flips in Q2 2018 and a population of at least 200,000, those with the highest average gross flipping ROI in Q2 2018 werePittsburgh, Pennsylvania(162.7 percent);Hickory-Lenoir-Morganton, North Carolina(129.0 percent);Mobile, Alabama(126.6 percent);Buffalo, New York(107.5 percent); andBaton Rouge, Louisiana(107.1 percent).

Among 1,451 U.S. zip codes analyzed in the report with at least 10 flips during the quarter, those with the highest average gross flipping ROI in Q2 2018 were 35211 inBirmingham, Alabama(352.4 percent); 63118 inSt. Louis, Missouri(351.6 percent); 37344 inFayetteville, Tennessee(323.7 percent); 19144 inPhiladelphia, Pennsylvania(294.1 percent); and 07017 inEast Orange, New Jersey(273.1 percent).

Highest home flipping rates in D.C.,Nevada,Tennessee

TheDistrict of Columbiahad the highest home flipping rate in the nation in Q2 2018 (8.3 percent), followed byNevada(7.4 percent),Tennessee(7.2 percent),Arizona(6.7 percent),Maryland(6.5 percent), andAlabama(6.4 percent).

Among 140 metropolitan statistical areas with at least 50 flips in Q2 2018 and a population of at least 200,000, those with the highest home flipping rate for the quarter wereMemphis, Tennessee(9.7 percent);Clarksville, Tennessee(8.2 percent);Atlantic City, New Jersey(7.9 percent); York,Pennsylvania(7.7 percent); andLas Vegas, Nevada(7.7 percent).

Among 1,451 U.S. zip codes analyzed in the report with at least 10 flips during the quarter, those with the highest home flipping rate were 11950 in theLong Islandcity ofMastic, New York(35.3 percent); 78537 inDonna, Texas, in theMcAllenmetro area (32.3 percent); 11717 in theLong Islandcity ofBrentwood, New York(28.2 percent); 35214 inBirmingham, Alabama(27.4 percent); and 38109 inMemphis, Tennessee(27.2 percent).

Shortest average time to flip inNew Hampshire,Arizona,Nevada,Alabama,Missouri

The average time to complete a home flip was 186 days for flips completed in Q2 2018 compared to 182 days in the previous quarter and 185 days a year ago.

States with the longest shortest average time to flip wereNew Hampshire(151 days);Arizona(161 days),Nevada(167 days),Alabama(168 days), andMissouri(171 days).

Among 140 metropolitan statistical areas with at least 50 flips in Q2 2018 and a population of at least 200,000, those with the shortest average time to flip wereMemphis, Tennessee(137 days),Manchester-Nashua, New Hampshire(138 days),Mobile, Alabama(140 days),McAllen-Edinburg-Mission, Texas(147 days); andVallejo-Fairfield, California(150 days).

Among 1,451 U.S. zip codes analyzed in the report (with at least 10 flips during the quarter), those with the shortest average time to flip were 73110 inOklahoma City, Oklahoma(83 days) followed by threeAtlanta-area zip codes: 30039 inSnellville, Georgia(88 days); 30294 inEllenwood, Georgia(89 days); and 30052 inLoganville(91 days); and 93637 inMadera, California(92 days).

Other high-level report takeaways

The median year built of homes flipped in Q2 2018 was 1978, tied for the oldest median year built as far back as data is available Q1 2000.

The median square footage of homes flipped in Q2 2018 was 1,408, the smallest median square footage as far back as data is available Q1 2000.

A total of 40,265 entities flipped properties in Q2 2018, a ratio of 1.21 flips per entity, the lowest ratio of flips per entity since Q1 2008 a more than 10-year low.

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Publication:The Mecklenburg Times (Charlotte, NC)
Geographic Code:1U6TN
Date:Dec 14, 2018
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