Does house flipping still pay?

Nationwide, fewer distressed homes and higher mortgage rates mean quick-buck seekers are seeing lower returns

Miami /
Sep.September 06, 2018 08:00 AM

House flipping (Credit: iStock)

Yes, home flipping still pays from coast to coast, particularly in New York. It just doesn’t pay as much as it did.

Returns for the quick buying-and-selling of a home dropped to a near four-year low from April to June, attributed to a reduced inventory of distressed houses available and fewer interested buyers.

But profits remained. In real numbers, a home flipped in the second quarter sold for an average of $65,520 above what a person paid for it, according to the latest quarterly report by real estate data provider ATTOM Data Solutions released Thursday.

As a percentage, a person who flipped a home turned a 44.3 percent return on investment in the second quarter, down from 47.8 percent in the first quarter. The most recent figure represents the lowest return on investment since the third quarter of 2014, according to the report.

It is also down from the all-time high of $69,500 in the first quarter. There was also a drop in the number of distressed homes flipped — 32.3 percent compared to 35.8 percent from January through March. According to the ATTOM report, more home flippers used loans to purchase their properties than they had in the first quarter, another sign that margins are tightening.

That could be partially due to higher mortgage rates as well as fewer distressed homes available.

Mortgage rates are expected to rise over the next year, in line with the Federal Reserve’s decision to increases the number of interest rate hikes. While higher rates will close off the housing market to some buyers, house flipping remains as popular in this cycle, industry experts say.

The Chicago area market’s 65.6 percent return on investment far exceeded the national average, as did the New York metro area’s 65.4 percent. In New York, high prices there meant that more than half of home purchases were made with financing, which could indicate a future slowdown, experts said.

In the Miami-Fort Lauderdale area, home flippers turned a 42.4 percent profit, slightly lower than the average. About 6 percent of home sales there were flips, down from 12.7 percent from previous quarter.

In Los Angeles the return on investment was just 29.5 percent, down from 32.5 percent in the second quarter. Because L.A. had the highest home prices, it also offered the highest average gross profit of any of those markets. On average, someone who flipped a home there made around $140,000, but had to pay around $475,000 for the property.


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