It looks like flipping homes is coming back into style. At least that’s what RealtyTrac’s Midyear 2013 Home Flipping Report revealed. According to the report, 136,184 single-family home flips occurred in the first half of 2013, a 19% increase from a year ago and a 74% rise from the first half of 2011.
A flip is where a home is purchased and subsequently sold again within six months.
The report also states that real estate investors brought in an average gross profit of $18,391 on single-family home flips in the first half of this year. This totals a 9% gross return on the initial purchase price, up 246% from an average gross return of $5,321 in the first half of 2012 and an average loss of $13,206 in the first half of 2011.
The real estate investors who flipped these homes during the first half of the year on average bought the homes at a discount of 5% below estimated market value, selling them at a premium of 1% above estimated market value of average.
"While flipping continues to be profitable in most markets, particularly those where the home price recovery is still nascent and a recent rebound in foreclosure activity allows investors to find distressed inventory at a discount, home flipping is tapering off in markets where fewer of those distressed bargains are available," said Daren Blomquist, vice president at RealtyTrac.
According to Blomquist, out of the 100 markets RealtyTrac analyzed for the report, 32 had declining flipping numbers, including perennial flipping hot spots like Las Vegas, Phoenix, Southern California and Atlanta. Still flipping was on the rise in more than two-thirds of the markets, including New York, Washington, D.C., Chicago and several Florida metros.
"While flipping of homes continues to be of great interest to many people in the general public as they see this as an easy way to make a fast profit, the opportunity to buy and flip homes in Southern California is diminishing each month, as the price to purchase fixer-uppers continues to increase rapidly," said Rich Cosner, CEO at Prudential California Realty covering Orange, Riverside and San Bernardino counties in Southern California.
Cosner noted that the allure of a quick profit from flipping can entice many first-time home buyers; however, the gross profit does not take into account the costs of repairs, upgrades, cleanup and the money spent while owning the property. In some areas home prices have increased so much that there is little or no profit available to flip it.
"Investors are back in a big way, from acquiring one-offs to larger portfolios of properties, especially in the five boroughs of New York City," said Emmett Laffey, CEO of Laffey Fine Homes International, covering Long Island and the five New York City boroughs. "As distressed properties hit the market they are sold quickly, and investors know that once the property is renovated and cleaned up the market for end users willing to pay top market dollar is strong."