If you agent who also invests and flips properties, perhaps you’ve noticed that you are seeing your profits shrink with each transaction.
According to a CNBC report, rising home prices, increasing renovation costs and a skimpier supply of distressed properties are making it more expensive to get in the game, even though demand for move-in ready homes is high.
According to Attom Data Solutions, a real estate data and analytics company, single-family homes and condos flipped during the third quarter of this year brought an average gross profit of $66,448 per flip, representing a 47.7 percent return on investment for flippers.
According to Attom, that return has slipped 48.7 percent in the second quarter and from 51.2 percent in the third quarter of last year. Daren Blomquist, senior vice president at Attom Data Solutions, said the mark is the lowest average gross flipping return on investment since the middle of 2015.
“Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins.”
For agents and their clients, home flipping is still a popular business. Close to 49,000 homes were flipped nationwide in the third quarter, unchanged from a year ago. Blomquist noted that there is more competition among flippers and the ratio of flips per investor has dropped to just 1.25, the lowest since 2008.
“A more than nine-year low in the ratio of flips per investor is evidence of this increased competition, which is pushing many investors to new metro areas that often have weaker market fundamentals but also come with a bigger supply of discounted distressed properties to flip.”
The highest flip rates in the nation are in Washington, D.C., Nevada, Tennessee, Louisiana, Alabama and Arizona.
The best returns are in Pittsburgh, Baton Rouge, Louisiana, Philadelphia, Baltimore and Cleveland.
Real estate agent Tony Giordano, of the Opulent Agency, told CNBC he has a number of flipper clients and the ones who are getting the best returns are the builders. They generally raze a home and start from scratch.
“The key I see with your most common type flipper is that the carrying costs can be much lower today than in previous hot markets. Cost of construction is higher, but time to flip lower.”
According to CNBC, technology is also making it easier for flippers to find the services they need and at the same time keep costs low.