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Auction.com: Are investors growing wary of flipping?

“Buy and hold” strategy becoming more prevalent

Real estate investors interested in making money on a home are becoming less likely to flip the home and more likely to hold the property and rent it out, according to a new report from Auction.com.

Auction.com’s 2015 Real Estate Investor Activity Report for April found that the gap between investors who are flipping a home and investors who are holding a property to rent is shrinking.

In Auction.com’s Real Estate Investor Activity Report for the first quarter, 53.5% of investors were looking to flip their purchase, while 44.8% were planning on renting the home out.

But in April, the share of investors looking to flip a home fell to 50.4%, while the share of investors planning to rent grew to 48.3%.

Auction.com Executive Vice President Rick Sharga said that the shift in the national numbers may be due in large part to Texas.

“Most of the country and most investor segments performed in a manner very consistent with what we’ve seen over the past year, but investment strategies in Texas appear to have shifted pretty dramatically,” Sharga said. “Investors probably realize that without oil fueling Texas’ growth, it’s unlikely that home prices will continue to appreciate rapidly, and it’s very likely that home purchase demand will weaken. Given those considerations, a buy-and-hold strategy may suddenly be much more attractive.”

However, investor intent varies considerably by the type of auction (live event versus online auction) and by investor profile.

Investors bidding at live events appear to be more likely to flip the properties they purchase based on survey responses collected in April, Auction.com’s report showed.

According to the report, respondents indicated a “strong preference” toward flipping over holding to rent in nearly every state where Auction.com conducted live events, with the exception of Texas, where lower oil prices have resulted in fewer energy related jobs in four of the past five months.

“It will be interesting to see if this trend spreads to other states where energy-related jobs have generated economic gains, or whether we’ll begin to see a boom in home purchases stimulated by these lower energy prices across the country,” Sharga said.

On the other hand, investors at online auctions in April continued to say that they are more likely to hold the properties they purchase – except in the West, where the pendulum has swung toward flipping. This shift, while slight, is likely due to the region’s higher purchase prices negatively impacting rental property returns, Auction.com said.

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