PROFITS FOR FIX-N-FLIPS
December 1, 2017
CEO & Founder, LendEdu
Have you ever looked at a property and thought with a little bit of elbow grease and some easy repairs, the place could sell for a lot more? If you have, you might have considered house flipping. There’s a whole slate of TV shows devoted to the subject that follow flippers through the ups and downs of their home renovations – before showing the cash-out when they sell.
While it makes for great entertainment, have you ever wondered if real home flippers are as successful as their small screen counterparts? How much are they really making with each project?
The Numbers Behind the Flips
Home flipping is commonly defined as buying, renovating and then selling a home within a 12 month period or less. Many who are doing this sort of flipping are raking in profits.
In the second quarter of 2017, 53,638 condos and single-family homes were flipped in the U.S. That means that 5.6 percent of home sales for one quarter of the year were flips. That’s a lot of flipping!
The average gross profit for house flips was $67,516, which worked out to a 48.5 percent return on investment. That might sound like a lot, but that number is a decline from a 2016 peak of 51.1 percent. Of course, these figures represent average national numbers and they can vary widely depending on the town, region or market.
The national statistics might be a helpful guide to how much you could possibly make, but if you’re serious about potentially flipping homes, you’ll want to know what those numbers look like in your backyard. The chart shows some national statistics.
The Phoenix Metro area counted 2,282 flips in the second quarter of 2017, which works out to a rate of 7.7 percent – higher than the national average. This was down 13 percent from the previous quarter, but up 3 percent from last year. The peak number of flips in this region was in 2005 when 6,089 flips took place in one quarter.
Flipping has cooled down in the Phoenix Metro area, but it’s not because of profit. In fact, the average gross profit was $53,000 during the period studied. That works out to a 32.1 percent return on investment – which is good, but considerably below the national average. While Phoenix Metro flippers made more than they did a year ago when they only brought in $52,175, their return on investment decreased slightly from 32.6 percent.
Phoenix flippers tend to buy relatively affordable homes, paying $165,000 for their flips and selling them for $218,000. They were also less likely than flippers in other national markets to purchase distressed or bank owned homes – with only 30.8 percent of flippers doing so.
All of this paints a picture of Phoenix Metro as a market where flippers are thriving, but where flipping may not be as profitable as it once was or is in other areas of the country. With fewer distressed properties, there are fewer opportunities to cash out big time when a home is sold. That doesn’t mean that flipping is a bad idea in Phoenix Metro – just that you need to be careful not to buy the wrong property or get in over your head as you could end up losing money.
There are a few things to consider before you close on your first fixer-upper. Flipping homes isn’t as glamourous as you might expect – it can involve a lot of money and stress.
Typically, people who are successful at flipping have the resources necessary to see the project to completion, despite setbacks or cost overruns. They also know how to get repairs done on a tight timeline – whether they do repairs themselves or have a list of trusted professionals. Additionally, most flippers have real estate know how. If they aren’t buying distressed properties, they’re focusing on well-priced homes in locations that are up- and-coming, or have thriving rental markets that will allow them to sell to property investors.
Nate Matherson is dedicated to helping consumers compare financial products via LendEdu.com. His company provides consumers with in-depth financial news, advice & opinions as well as data-driven research. Nate can be reached at firstname.lastname@example.org or at (201) 605-7725.