Why Home Flippers Are Nervous

The percentage of homes flipped in the third quarter dropped to 5.1 percent of single-family and condo sales or 45,718 homes, a new report released by ATTOM Data Solutions shows. The number of homes flipped is receding from a six-year high of 53,892 homes reached in the previous quarter. The report defines a home flip as a property that is sold for the second time within a 12-month period. ATTOM Data Solutions used publicly recorded sales deed data in more than 950 counties for its report.

“While the macro trends of low housing inventory and rising home prices are favorable for flippers, they are also a double-edged sword, attracting more competition and reducing the availability of deals — particularly in the most fundamentally sound local markets,” says Daren Blomquist. “This is chasing some investors into markets and neighborhoods that may be less fundamentally sound but also offer more value-add opportunities for flippers in the form of aging housing inventory.”

Homes flipped in the third quarter sold, on average, for $190,000. The average gross flipping profit was $60,900 more than the average purchase price of $129,200, the report shows. The average gross flipping return on investment was 47.1 percent of the purchase price, down slightly from 47.9 percent a year ago. But those numbers don't reflect pure profit, Blomquist cautions. 

“While the high-level gross flipping profits are impressive, it’s important to note that they do not include all the costs incurred by flippers, including rehab, financing, property taxes and other carrying costs,” he says. “It’s also important to note that the overall averages mask the fact that not every flip ends profitably for the investor. About 8 percent of the homes flipped in the third quarter actually sold for less than what the flipper purchased them for, and about 21 percent of the flips yielded a gross flipping ROI below 10 percent — likely meaning the flipper walked away with a net loss on the deal.”

The metro areas seeing the highest rates of home flipping are:

• Memphis: 11%
• Clarksville, Tenn.: 9.5%
• Deltona-Daytona Beach-Ormond Beach, Fla.: 9.3%
• Tampa-St. Petersburg, Fla.: 9.3%
• Visalia-Porterville, Calif.: 9.3%
• York Hanover, Pa.: 9.2%
• Lakeland-Winter Haven, Fla.: 9%
• Fresno, Calif.: 8.7%
• Miami: 8.6%
• Las Vegas: 8.2%

Source: RealtyTrac