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.
Read more
Residential
New York
Exhausting other options, buyers flock to fixer-uppers
Residential
New York
What discount to expect on stale listings, fixer-uppers
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