House flipping is becoming a thing of the past. The economy is growing, more people are working, foreclosures and vacant home inventory is low. The housing market has rebounded. Profits from home flipping continue to decline with a decreasing inventory of distressed properties available to flip.
During the third quarter of 2017, nationwide, there were 48,685 properties that were flipped by 38,928 investors. This equates to 1.251 flips per investor, the lowest ratio since the second quarter of 2008. Flipping has cooled and may be running its course.
The third quarter of 2017 saw a two-year low in flipping homes and was the fourth consecutive quarter showing a decline in the Return on Investment (ROI). During the first quarter of 2017, the flipping rate was 6.9%, the second quarter was 5.6% and the third quarter was down to 5.1%. The third quarter also marked Denver as declining 2% from the home flipping rate a year ago. During 2013, the average flipper gained over $90,000 for each flipped house. Today, that average profit has fallen to around $66,000. The average time in the third quarter of 2017 a flipped home is bought, renovated and then sold is 181 days.
Investors have been gravitating to new metro areas where, even though the market is weaker, there may be a larger supply of distressed properties. Metro areas with the lowest average flipping ROI during the third quarter were Austin, Texas, Reno, Nevada, Dallas-Fort Worth, Texas, Kansas City, Kansas, and Salt Lake City, Utah.
Investors who continue working in the flipping market today have to complete the transaction as quickly as possible. Speed is of the essence - every day expenses such as insurance, utilities and property taxes continue to mount, even when the investor pays cash. Inspections are time-consuming, but if done too quickly, a cracking foundation or other major issue will kill a profit. Other time-consuming factors are finding a lender, ensuring compliance with building codes, listing and selling the home as well as the time for actual renovations. To sell fast, the maximum profit is not always the main objective.
Even seasoned investors have issues and problems finding experienced and professional carpenters, plumbers and electricians who are dependable and licensed. Profits come from sweat equity - where the investor is doing as much of the work as possible.
Location has always ‘been everything’. If you buy a home for $60,000 in a neighborhood where home sales average $90,000 to $115,000, don’t expect to sell your home for $150,000. You’ll also need to understand all the applicable tax laws, capital gains taxes and zoning laws. This understanding will help you realize what would be profitable to renovate and what renovations might not be necessary.
It’s always a good idea to hire an experienced and qualified real estate attorney to handle the sale. Investors typically sell themselves, but the smart investors will hire an expert real estate attorney and think of it as a very wise investment.
In addition to Real Estate Law, Gantenbein Law Firm's attorneys also practice Tax Law, Business Law, Probate, Wills & Trusts, Estate Planning, Homeowner Defense Against HOAs, Credit Dispute and Repair, Elder Law and Foreclosure Defense.
For more information, visit www.gantenbeinlaw.com or call 303-618-2122.
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