Key Highlights
- Profits on home-flips at record high
- More than 60 banks and other investment firms financing today’s home flippers
Time Heals All Wounds
The old saying, “time heals all wounds,” seems to be true when it applies to lenders who now have fading memories of the 2007-housing bust. According to AlphaFlow, an investment firm that buys real estate loans from lenders, there are currently more than 60 American lenders and other investment firms that are financing home flippers in the US. This kind of lending action represents an increase of nearly +50% in just the last two months.
Likewise, interest rates on most fixed-income investments continue to be paltry while, according to ATTOM Data Systems, profits on house flips are at a record high of approximately $66,000 on average per house.
Huge Discrepancy Between Average Annual Rate on Flip Loans and Individual Home Loans
The average annual rate on a flipped loan is currently 7.9%, more than double the 3.09% rate a bank can earn on a 30-year mortgage. That 7.9% average annual rate on a flipped loan is also more than double the 3.75% loans that the biggest junk-rated borrowers might pay. Another plus for lenders in an environment of rising interest rates…flipped loans tend to be short-term, usually measured in months rather than years. All these conditions result in flip-lenders getting high ROI in quick turn-around times.
Flippers Making High Profit
Home flippers are cashing in on urbanites “fleeing” to buy suburban homes. The problem for those buyers and the joy for home flippers is low inventory…the lowest inventory of existing homes for sale since at least 1999.
Such low inventory is a huge motivating factor for investors to buy older/derelict properties to be fixed and flipped. According to ATTOM, 5.9% of home sales in 2020 were to flipping investors, the second highest percentage for any year since 2012.
The average gross earnings for flipped houses hit $66,300 in 2020, the highest average gross earnings since at least 2005, again according to ATTOM.
Experts Expecting Continued Upsurge in Home Flipping in 2021
AlphaFlow, the investment firm that buys real estate loans from lenders, anticipates home flippers could sell some $75B over both 2021 and 2022. This estimated $75B compares with an average of $56B over each of the last three years. The reason for this big jump to $785B? Not every still-living-in-the-city urbanite wanting to move into larger suburban homes has moved yet.
Also, if and/or when high unemployment remains higher than “normal” and forbearance programs for mortgages end, lenders could foreclose on a large number of homes. Bet on speculators being ready to buy those repossessed homes.
Most Popular States for Home Flipping
Since most flippers concentrate on the lower end of the housing market, nearly 68% of home flips sold for not more than and usually less than $300,000 in 2020, according to ATTOM. (The median price of an existing home at the end of 2020 was $309,200.)
States most popular for home flipping include Tennessee, Arizona, Alabama, Georgia and Nevada, according to ATTOM.
Currently, second-tier, regional lenders such as Builders Capital, Temple View Capital and Cutter Hill Capital are involved with home flippers. Expect to see some Wall Street big guns become involved with flippers this year and next as the housing market continues to sizzle.
Thanks to ATTOM Data Systems and Bloomberg.
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