Given the escalating home prices and low interest rates, it comes as no surprise that house flipping is still a hot real estate strategy. And the continued interest is causing more and more investors to come out of the woodwork to look for a high return.
Buying, renovating, and reselling a property quickly requires access to money though. The good news is that developers are willing to pay premium for it. Loans now typically run for a year and are backed by the property. Plus, the funds financing them offer decent returns at 8 percent for those who can meet a minimum of $100,000 of investments.
But as the supply of bargain homes begin to dry up, flippers need to start looking elsewhere to snag good deals. And the emerging hot spots are not where most people would expect.
More People Entering House Flipping
Buffalo in New York saw the biggest increase in flippers in 2017. A recent report from real estate data firm ATTOM Data Solutions said that there was a 34 percent surge in interest.
The firm looked at all condominium and single-family units that were purchased and resold over a period of 12 months. Only 174 metros had sufficient data so were the only ones included in the report.
Buffalo was followed by New York City at 29 percent, Dallas at 23 percent, Louisville at 22 percent, and Birmingham at 17 percent. Surprisingly, these are not the primary markets for investing in real estate.
“They are more off the beaten path, so there’s less competition from other investors and there’s more availability for deals,” says Daren Blomquist, senior vice president at ATTOM.
At the same time, fewer flippers were reported in Miami where it fell by 14 percent, and Seattle and Los Angeles, which were both down 2 percent. This was mainly due to skyrocketing home prices that many interested investors found too high to get in the market and make a good profit.
On a national scale, flippers made record profits last year at an average gross of $68,143. Over 207,000 properties were bought, renovated, and resold within a 12-month window. That makes it the most flips since 2006.
But returns on initial investments were lower by around 49.8 percent in comparison to the 51.9 percent of the previous year. The housing shortage had left fewer bargain houses on the market that appealed to those who wanted to flip them. Still, the figures are higher than the lead-up to the 2004 financial crisis.
Where to Flip Houses Now
More people are confident in the housing market and are willing to give home flipping a try. However, they would need to search elsewhere if they want to make a profit this year.
Markets with the highest flipping rates were Memphis at 12.8 percent, Las Vegas at 9.1 percent, Tampa at 9 percent, Birmingham at 8.6 percent, and Phoenix at 8.5 percent.
When talking about Memphis, Blomquist says that it yields good returns due to lower-priced real estate options available in the area. Dan Butler of CrestCore Realty says that most flippers are transacting with investors on the West Coast or in the Northeast.
Other areas where house flipping is on the rise include Dallas-Fort Worth in North Texas. It ranked third in 2017 for year-to-year growth, plus its sale of flipped homes rose by 23 percent. Local zip codes where flips accounted for the highest percentage of overall sales last year were 76105, 76119, 76106, 75224, and 75233.
New Jersey is yet another hotspot with flipped homes representing over 6 percent of all home sales in 2017. State-by-state analysis by ATTOM says that more than 7,500 single-family properties that exchanged hands last year already had a sale record in the past 12 months. Unfortunately, one of the reasons why NJ may have become attractive to real estate investors recently is that they had the highest foreclosure rate in the country, meaning they have many lower-priced homes waiting to be flipped.
Meanwhile, flippers in Orange County and Los Angeles averaged $135,000 in profit last year. California ranked as the 11th highest flipper state at 9.6 percent. The San Bernardino-Riverside metropolitan area is especially fruitful with a per property gross flip profit of 36 percent. This makes it another good option as to where people should flip.