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The Trend of Home Flipping in the US on the Decline

06/11/2015

For decades, investors did incredibly well by purchasing dilapidated homes, making necessary repairs and upgrades, and selling for a profit. Many people thought that flipping would continue indefinitely but now there is a decline in the United States.

Statistical Insight

In the 2015 US Home Flipping Report produced by RealtyTrac, a total of 17,309 single family homes were flipped and sold within 12 months but of those, just 4 percent sold in the first quarter. Compared to the second quarter of last year when only 3.4 percent of flipped homes sold, this insignificant jump strongly indicates a decline in the flipping movement.

Although there is an improvement in the purchase and flipped price, the change is very small. In the first quarter of 2014, the amount was $61,684 and in the last quarter of 2014, $65,290. While the price hit $72,450 in the first quarter of 2015, the increase was a very small drop in the bucket. Another decline is seen in the average gross return on investment. In the first quarter of 2015, the return on investment was down slightly to 35.1 percent compared to fourth quarter’s return of 35.3 percent.

As stated by Daren Blomquist, vice president of RealtyTrac, in looking at current statistics, it is apparent that flipped homes are still in recovery mode. For people who flip homes, the biggest challenge is finding good inventory. The goal is to locate distressed homes that after being flipped will yield a nice return on investment. However, with tight inventories throughout the country, this has become difficult to achieve.

The primary reason this is difficult is that many first-time home buyers are purchasing the rental home in which they live and/or second homes that will be used for retirement. In addition, there are a growing number of real estate investors who want turnkey rental properties that will produce steady cash flow.

Blomquist added that there are markets where investors can find inventory of distressed homes coupled with affordability and demand for quality flipping. If someone is responsible with flipping, these and other markets provide incredible opportunity.

High Return on Investment

Below are examples of markets that are yielding the highest average return on investment specific to flipped homes.

  • Baltimore, Maryland – 94.1 percent
  • Deltona/Daytona Beach/Ormond Beach, Florida – 74.7 percent
  • Ocala, Florida – 73.9 percent
  • Lakeland, Florida – 62.5 percent
  • Detroit, Michigan – 58.3 percent
  • Tampa, Florida – 57.2 percent
  • Pittsburgh, Pennsylvania – 55.2 percent
  • Memphis, Tennessee – 54.8 percent
  • Chicago, Illinois – 52.9 percent
  • Seattle, Washington – 49 percent
  • New York, New York – 47.1 percent
  • Washington DC – 44.2 percent
  • Boston, Massachusetts – 44 percent

As expressed by OB Jacobi, president of Windermere Real Estate who oversees the housing market in Seattle Washington, there were two main reasons that flipping homes in and around the Seattle area has declined. First is the increasing price of homes and second low inventory. Based on these two factors, competition in is incredibly tough.

In addition to there being very few homes to flip, real estate investors are now in direct competition with buyers willing to pay more than the current market value and in many cash, fork out cash for the transaction. Even though conditions are far from being ideal for flipping homes and making a decent profit anywhere in the country, good opportunities exist when looking in the right places.

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