House Flipping is Down Since 2006 Peak, But Average Gross Profit is Rising

Flipping homes after paying for rehab costs was all the rage before the housing market collapse, but the practice made a bit of a rebound in recent years and average gross profits are on the rise.
However, overall house flipping is slipping. RealtyTrac reports that 30,013 single family homes were flipped — sold as part of an arms-length sale for the second time within a 12-month period — in the second quarter. That’s about 4.5 percent of all single family home sales during the quarter.

The 4.5 percent share of second quarter home sales was down from 5.5 percent in the previous quarter, and down from 4.9 percent a year ago.
Going back to the first quarter of 2000, flipping hit its peak in the first quarter of 2006, when 8.0 percent of all single family home sales were flips.
The average gross profit — the difference between the purchase price and the flipped price (not including 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) — for completed flips in the second quarter was $70,696, up from $67,753 in the previous quarter — and up from $49,842 a year ago.
“Despite the rise in flipping returns in the second quarter, home flippers should proceed with caution in the next six to 12 months as home price appreciation slows and a possible interest rate increase could shrink the pool of prospective buyers for fix-and-flip homes,” said Daren Blomquist, vice president at RealtyTrac. “While average flipping returns are up substantially from a year ago at the national level and in moderately-priced markets such as Miami, Atlanta, Phoenix and Minneapolis, flipping returns are softening in some of the higher-priced markets such as San Francisco, Seattle, Denver and Los Angeles.”
Fewer foreclosure deals and longer flipping timelines means flippers “are getting squeezed on both sides of the profit equation,” Blomquist added.
“Experienced flippers will often need to enter into higher-risk markets with less solid economic fundamentals to chase better yields,” he said. “Flipping is not always profitable, as evidenced by the fact that flips on low-end homes priced below $50,000 actually yielded negative returns in the second quarter.”

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