The Truth About House Flipping’s Impact on the Real Estate Market
As a house flipper with over 20 years of experience, I’ve often heard misconceptions about how flipping affects the real estate market. Some believe flippers drive up housing prices or take homes away from owner-occupants. In reality, the situation is much more nuanced, and flippers actually play a vital role in stabilizing the market.
Table of Contents
Video: House Flipping’s Impact on the Real Estate Market
Do House Flippers Take Homes Away from Owner Occupants?
Many assume flippers are outbidding potential homeowners, but that’s rarely the case. In fact, owner-occupants typically have a competitive edge. Here’s why:
- Flippers Have More Costs: When I buy a home, I have to factor in repair costs, labor, materials (which have skyrocketed), holding costs (utilities, insurance, taxes), and financing. Homeowners, on the other hand, don’t incur most of these expenses.
- Owner-Occupants Can Pay More: Since they’re living in the house, owner-occupants can often afford to pay $20,000 to $30,000 more than a flipper, still getting a great deal and building equity.
- Livability Standards: Most owner-occupants use loans like FHA, VA, or conventional loans, which require the home to be in livable condition. Houses that flippers buy—like those with holes in walls or broken plumbing—often don’t meet those standards, meaning we’re not competing for the same properties.
Why Are We Buying the Homes No One Wants?
The homes we buy usually aren’t competing with those available to owner-occupants. They’re homes that need serious work, often too much for the average buyer to handle. Whether it’s through a foreclosure auction or from sellers who want to avoid showings and inspections, many of these homes would otherwise sit vacant.
The reality is, most buyers don’t want the hassle of dealing with broken heating systems, electrical issues, or mold. That’s where we come in, using our expertise to restore the property.
Fix and Flip 70 Percent Rule Calculator
Are House Flippers Raising Housing Prices?
Another common myth is that flippers are raising housing prices. However, this idea doesn’t hold up to scrutiny:
- Appraisals Keep Prices in Check: After we renovate a house, the new buyer still needs an appraisal, and appraisers typically won’t value a house beyond what comparable homes in the neighborhood are selling for.
- Neighborhood Caps: In many areas, there’s a price cap on what homes will sell for, regardless of how nice the renovations are. Trying to exceed this cap can lead to financial disaster.
- Low Appraisals: Sometimes, appraisers will even come in low, assuming that the flipper is making too much profit, which can further limit prices.
Flippers can’t single-handedly raise prices. In fact, most of us aim to buy at a discount to cover our renovation and holding costs while ensuring the home’s final price is competitive.
Do Flippers Just Put “Lipstick on a Pig”?
It’s true that some flippers only make cosmetic improvements, but that’s not the norm. My team and I thoroughly inspect the homes we purchase, addressing major issues like plumbing, electrical, and structural repairs. While cosmetic flips happen, they’re usually the result of specific situations, like a seller needing a quick, hassle-free sale.
When buying homes, we focus on making the property safe, livable, and up to code—because if we don’t, it’ll be impossible to sell it later. That said, bad actors exist in every industry, and there are some flippers who cut corners. That’s why inspections are crucial for homebuyers, especially with flipped homes.
What is the Best Way to Invest in Real Estate?
How House Flippers Help the Real Estate Market
The idea that house flippers hurt the market is flawed. In reality, we contribute by:
- Adding Inventory: Many of the homes we buy are vacant, unlivable, and have been off the market for years. By fixing them up, we make these properties available to buyers, increasing the housing supply in tight markets.
- Revitalizing Neighborhoods: Many homes we flip are eyesores that have been neglected. Renovating these properties improves neighborhood aesthetics and prevents further deterioration.
Landlords and Flippers: A Misunderstood Group
Like flippers, landlords are often seen as contributing to housing problems, but this isn’t accurate. There are fewer single-family rentals today than in 2016—1.2 million fewer, in fact. While corporate landlords dominate the headlines, the reality is that more homes are being purchased by owner-occupants than landlords, which reduces rental inventory and contributes to rising rents.
When landlords do buy and renovate dilapidated properties, they’re also adding to the housing supply, particularly for those who can’t afford to buy a home. This added inventory helps stabilize both rental prices and the overall market.
Conclusion
The real estate market is complex, and while there are bad actors, most house flippers are providing a necessary service. By buying homes that are unlivable, fixing them up, and putting them back on the market, we’re helping to increase supply in a housing market that’s always in need of more options. While we aren’t perfect, flippers aren’t the villains of the housing market. We’re just another piece of the puzzle.