Home flippers are stepping up their presence in the real estate market at a time when profits have dipped to a ten-year low.
Around 4.9% of all home sales in the second quarter came were home flips, which ATTOM Data Solutions defines as a home or condo that was bought and then sold on again within 12 months. That’s up from just 3.5% of all home transactions in the first quarter of the year, though home flipping activity still lower than what it has been throughout most of the last decade.
Perhaps the most interesting finding from ATTOM’s 2021 U.S. Home Flipping Report is that home flippers are seeing lower profits per flip. According to the report, the gross profit on a typical home flip – which is the difference between the median sales price and the median paid by the flipper - was $67,000 in the second quarter. That is a 33.5% return on investment compared to the original acquisition price. Still not bad, but down from 40.6% a year earlier and the lowest point since the first quarter of 2011.
The lower profitability can be explained by rising home prices. The median price of homes flipped in Q2 rose to an all-time high of $267,000, up 18.7% from a year ago. Those price increases, however, failed to surpass the increases that investors were absorbing when they purchased the homes they sold in the second quarter, according to the study. The gap - prices rising more on a purchase than resale - led to profit margins dropping, researchers note.
“Home flipping rebounded during the second quarter, but profits sure didn’t,” said Todd Teta, chief product officer at ATTOM. “The typical home flip around the country netted the smallest return on investment in a decade. However, it’s not like home flipping has become a losing proposition. A 33 percent profit on a short-term investment remained pretty decent, even after renovation and holding expenses. But with a few more periods like the second quarter of this year, investors may need to reframe how they look at these deals.”
ATTOM’s report highlighted Savanna, Ga.; Fort Wayne, Ind.; Canton, Ohio; and Indianapolis as the most popular markets for home flippers, flips representing close to 9% of all residential property sales there. The highest return on investment for flippers was found in Oklahoma City, where flippers generated a median ROI of 196.4%, according to the report. Other markets, including Fargo, ND; Pittsburgh, PA;, Omaha, Neb; and York, PA also saw flippers enjoying returns of over 100%, the report found.