House flipping, the investor practice of purchasing homes at rock-bottom prices and quickly reselling them for a profit, is tapering off in many markets but is still active in others. Minimizing the potential of flipping is raising home prices and mortgage rates. Also, the low inventory of available properties leaves little incentive for sellers to accept a below market price.
In fact, some areas are experiencing “bidding wars” for particularly desirable properties. However, there is encouraging news for some flippers. RealtyTrac, an online site for real estate data, recently released its Midyear 2013 Home Flipping Report, which shows 136,184 single family home flips — where a home is purchased and subsequently sold again within six months — in the first half of this year.
That’s up 19 percent from a year ago and up 74 percent from the first half of 2011. The report also shows that real estate investors made an average gross profit of $18,391 on single family home flips in the first half of the year, a 9 percent gross return on the initial purchase price. That was up 246 percent from an average gross return of $5,321 in the first half of 2012 and an average loss of $13,206 in the first half of 2011.
Real estate investors who flipped homes in the first half of the year purchased those homes at a discount of 5 percent below estimated market value on average and sold them at a premium of 1 percent above estimated market value on average.
“While flipping continues to be profitable in some markets, particularly where the home price recovery is still nascent and a recent rebound in foreclosure activity allows investors to find distressed inventory at a discount, home flipping is tapering off in markets where fewer of those distressed bargains are available,” said Daren Blomquist, vice president at RealtyTrac.
“Out of the 100 markets we analyzed for the report, 32 had declining flipping numbers, including perennial flipping hot spots like Las Vegas, Phoenix, Southern California and Atlanta. Still flipping was on the rise in more than two-thirds of the markets.”