Time to Worry? Home Flippers Making Record Profits Again

Source: iStock

Source: iStock

The housing market has been returning to a more sustainable pace this year, but home flippers are still finding a way to make money. In fact, average gross profits per flip is at a new record high.

Home flippers – people who purchase a home and sell it again within 12 months – completed 26,947 single-family home transactions in the third quarter, according to a recent report from RealtyTrac. Home flips accounted for 4% of all domestic single-family home sales during the quarter, down from 4.6% in the second quarter, and down from 5.6% a year earlier. However, flippers averaged a gross profit of $75,990 on each home, representing the highest dollar amount in history.

Despite the impressive dollar figure, gross profit on a percentage basis is holding relatively stable – helping to diminish worries about a housing bubble repeat. In the third quarter, investors averaged a 36% gross return on the initial investment, which does not include rehab costs and other expenses. That is up slightly from 35% in the previous quarter, but down from 37% in the third quarter of 2013. Markets with the best return on flips included Baltimore (88%), Pittsburgh (79%), and Detroit (61%).

“Flipping returned to its historic norm of 4% in the third quarter as home price appreciation cooled in many of the hot flipping markets across the country,” said Daren Blomquist, vice president at RealtyTrac. “Meanwhile, the record-high average profits per flip in the quarter demonstrate that flippers are still filling an important niche in an aging housing market with historically low levels of new homes being built. The most successful flippers are buying older, outdated homes in established neighborhoods and rehabbing them extensively to appeal to modern tastes.”

On average, flips completed in the third quarter took 185 days to complete, a slight improvement from 187 days in the second quarter, but up from only 133 days a year earlier. Homes priced $100,000 to $400,000 represented 64% of all homes flipped during the quarter, while homes priced below $100,000 represented 20%.

Metros with the highest dollar amount of average gross profit on home flips included San Francisco, San Jose, Los Angeles, New York, Seattle, and San Diego, all of which had an average gross profit of more than $125,000 per flip. The best returns on homes flipped in the third quarter were on homes with a flipped sale price between $1 million and $2 million, yielding a 45% average gross return on investment.

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