Flipping houses sure looks great on TV, doesn’t it? Looks like anyone with a decent eye could do it. Looks pretty easy and fast. And it looks as though flipping house is a great way to make lots of money. Right?
Attom Data Solutions defines a flipped house as a property that is bought and sold within a 12-month period of time. In 2017, 138,410 people or companies were involved in flipping 207,000 houses. Both the number of flippers and the number of houses flipped were at their highest levels in a decade.
Today’s flippers are different from flippers 10 years ago who were able to use cheap and easy money to finance their trades. Today’s flippers make a lower net return on their flipped houses than those in the business of flipping 10 years ago due to higher home prices, fewer distressed houses, sizzling hot competition and very few homes of all stripes available to flip. The average gross return on investment in 2017 was 49.8% and 51.9% in 2016, according to Attom.
Also, today’s financing for flipping houses is different than it was 10 years ago. Private lending for flipping is a growing trade because “there’s money to be made.” Fannie Mae, the government backed lender, now backs as many as 10 investor loans per flipper but requires very strict underwriting. And interest rates on flippers are higher (10% – 12%) than interest rates on regular owner-occupied properties (4.6% 30-year fixed rate.)
Places with the highest average gross returns on flipped houses include
– Scranton @ 168.2%
– Pittsburgh @ 145.5%
– Baton Rouge @ 122.9%
– Philadelphia @ 115.7%
– Cleveland, Baltimore, Buffalo all above average
The highest flipping rates in the country include Memphis, Las Vegas, Tampa, Birmingham and Phoenix.
A word to the wise from the most successful flippers…
1. Try to use all cash.
2. Set a clear budget for renovations.
3. Keep renovations simple.
4. Focus renovations on the kitchen and bathrooms
5. Location is key – an up and coming neighborhood is the best.
6. Thoroughly research and know comparable pricing structures of sold homes.
7. Avoid houses that are already listed…go to a seller, a housing wholesaler, an insider network of savvy real estate agents to discover available houses.
8. Sell fast for a nice profit; don’t list or “wait” for a fantasy price.
One veteran flipper, Taylor Denchfiled, started flipping houses at age 17. He’s now 25 and averages net returns of 30% per project. Denchfield says, “I’m a real estate agent so I’m able to both buy and sell the deals myself without having to spend on listing commissions. I’m a builder so I have all the contractors and staff in-house to build the house with know-how and know-what…and I have contacts to source off-market deals. Those three things combined are really what permits me to be more profitable than some others.”