Profit margins on fixer-uppers fall to 10-year low

Housing market’s slowing growth to blame for home flippers

National /
Sep.September 17, 2021 12:00 PM
The slowing of the housing market has squeezed the profit margins of house-flipping investors. (iStock)

The slowing of the housing market has squeezed the profit margins of house-flipping investors. (iStock)

The hot housing market made it a boon to flip homes. But with buyers beginning to ease up, and sellers of even dilapidated homes demanding top dollar, investors in fixer-uppers are seeing profit margins sink.

Their return on investment the second quarter came in at less than 34 percent of the original home price, according to a study by Attom Data Solutions. It’s the lowest profit margin for home flips since 2011, Inman reported.

The return on investment dropped almost 4 percentage points from the first quarter. It also dropped 7 percentage points from the second quarter of 2020, the first full quarter of the pandemic.

The reason behind the slipping profit margins is the stabilization of the housing market, which had surged in the first year of the pandemic. Although housing prices are still growing, they are no longer climbing at such a rapid rate.

The median price of a flipped home sold in the second quarter was up 11 percent from the first quarter and 19 percent year-over-year. When the same flipped homes were bought, the median price was up almost 14 percent from the previous quarter and 25 percent year-over-year.

Another factor in the profit-margin drop may be that the percentage of homes being sold as flips increased from the first quarter, meaning fewer flips are low-hanging fruit. Home flip sales made up 4.9 percent of all sales in the second quarter, a rise from 3.5 percent the previous quarter, when home flips were at a two-decade low.

Investors are increasingly looking at fixer-uppers, hoping to turn a quick buck on a property that typically produced an 8 to 12 percent yield. But the supply of fixer-uppers available has been hampered by the rise in home prices, cutting off a pipeline of homes that usually become available for investors after they are foreclosed on.

[Inman] — Holden Walter-Warner





    Related Articles

    arrow_forward_ios
    Single-family rentals are increasingly seen as a more realistic alternative to ownership, given the hot housing market and income inequality. (iStock)
    Single-family rentals soaring in hot housing market
    Single-family rentals soaring in hot housing market
    (Getty)
    Manhattan buyers shun fixer-uppers
    Manhattan buyers shun fixer-uppers
    Sheldon Solow and the Hamptons estate (Getty, Douglas Elliman)
    Sheldon Solow’s Hamptons home gets $10M price cut
    Sheldon Solow’s Hamptons home gets $10M price cut
    Investors home purchases rose to 15 percent in the second quarter, a year-over-year increase of 3.9 percentage points. (iStock)
    Investors take bigger bite of US housing, and pay less
    Investors take bigger bite of US housing, and pay less
    Chicago Bulls’ DeRozan buys mansion from Michael Jordan’s ex-wife at discounted $4.5M
    Chicago Bulls’ DeRozan buys mansion from Michael Jordan’s ex-wife at discounted $4.5M
    Chicago Bulls’ DeRozan buys mansion from Michael Jordan’s ex-wife at discounted $4.5M
    Existing home sales were on the upswing in September following a slight dip in August. (iStock)
    Existing home sales rebound in September, rising by 7%
    Existing home sales rebound in September, rising by 7%
    Prices for the few homes in Fairfield are still going up (iStock)
    Few listings, sustained demand keeps Fairfield home prices near record highs
    Few listings, sustained demand keeps Fairfield home prices near record highs
    520 Park Ave and Gil Agmon (Getty, Delek Motors, Robert A.M. Stern Architects)
    After split, 520 Park sponsor unit sells to Israeli automotive exec for $36M
    After split, 520 Park sponsor unit sells to Israeli automotive exec for $36M
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...