Lack of inventory chases home flippers from market

Home flippers, driven by a lack of housing inventory, appear to be retreating from the market with flips hitting their lowest point since 2010, but gross profits for those still in the business continue to rise, a new report from Irvine-based RealtyTrac reveals.

The Home Flipping Report shows that 17,309 single-family homes were flipped – sold for the second time in a 12-month period – in the first quarter. That’s 4 percent of single-family home sales during the quarter, down from 4.7 percent in the fourth quarter of 2014 and from a recent high of 6.7 percent at this time last year.

Flipping Historical The average gross profit – the difference between the purchase price and the flipped price – for completed flips in the first quarter was $72,450, up from $65,290 in the previous quarter and up from $61,684 in the first quarter of 2014 to the highest level going back to the first quarter of 2011, when RealtyTrac first started tracking the data.

The average gross return on investment (ROI) – average gross profit as a percentage of the average original purchase price – was 35.1 percent in first quarter 2015, down slightly from 35.3 percent in the fourth quarter 2014 but up slightly from 35.0 percent in the first quarter of 2014.

“The strong returns for home flippers in the first quarter demonstrates that there is still a need in this recovering real estate market for move-in ready homes rehabbed to more modern tastes, particularly given the Flipping historical returns dearth of new homes being built,” said Daren Blomquist, vice president at RealtyTrac. “The challenge for flippers in 2015 will be finding inventory to flip. Flippers ideally want to buy distressed homes that provide them with an opportunity to add value in markets where there is good affordability and ample demand from buyers for the finished flip product – whether those buyers are Millennials becoming first-time homebuyers, baby boomers purchasing their present or future retirement home, or buy-and-hold real estate investors looking for turnkey rental properties that cash flow.”

Among markets with at least 50 completed single-family home flips in the first quarter, those with the highest average gross ROI were Baltimore (94.1 percent), Deltona-Daytona-Ormond, Florida (74.7 percent), Ocala, Florida (73.9 percent), Lakeland, Florida (62.5 percent), and Detroit (58.3 percent).

Other major markets in the top 20 for highest average gross ROI on homes flipped in the first quarter included Tampa (57.2 percent), Pittsburgh (55.2 percent), Memphis (54.8 percent), Chicago (52.9 percent), Seattle (49 percent), New York (47.1 percent), Washington, D.C. (44.2 percent), and Boston (44 percent).

Flipping returns Of the completed flips on single-family homes in the first quarter, 34.7 percent were flipped to real estate investors and second home buyers – the highest share since the first quarter of 2011. Owner-occupant buyers still purchased the majority of flipped properties, 65.3 percent, but that was down from 67.2 percent in the previous quarter and down from 71.4 percent in the first quarter of 2014. The share of flipped homes sold to owner-occupants peaked in the second quarter of 2012 at 74.1 percent.

More than half of all homes flipped in the first quarter of 2015 sold for between $100,000 and $300,000. Homes flipped for between $100,000 and $200,000 accounted for 34 percent of all completed flips in the first quarter, while homes flipped for between $200,000 and $300,000 accounted for 19 percent of all completed flips in the first quarter.

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Published May 7, 2015

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