The Economic Impact of Flipping

Whether it is one person buying a house to flip, or a multi-person operation doing several flips at once, I wanted to examine the economic reach that is involved in flipping a house from finding a deal, rehabbing the property and then selling it to an end buyer. My goal with this article is to get people to not think of flipping as one or two people turning a house from drab to fab, but to give a fuller picture about all the “tentacles” that flipping has in the economy.

In order to find a house to flip, many flippers spend money on marketing to find deals whether it is sending postcards or letters via direct mail through the USPS or another mail marketing firm They may also conduct online marketing with a website using SEO, or pay-per-click ads via Google or Bing. Direct mail will require the flipper to purchase a mailing list of leads. Their website and online marketing will require many people such as web developers web hosting and email platforms, virtual assistants, SEO and PPC consultants, social media consultants and a host of other online support areas.

The houses that flippers buy are typically in bad shape and in need of repair. They may use their own cash to fund the purchase and rehab, or they may use either a Hard Money Lender, or a Private Investor to fund the deal. In either case, someone is earning loan fees and/or interest from the flipper.

The person that sold the house to the flipper (the Seller) may have come away from the deal with some cash. Whether it is spent or saved it is put into the economy. In addition, some deals may involve the payment of delinquent taxes, mortgage payments or other liens. The point is unpaid items are now paid off (increase in municipal revenue, bank revenue, etc.).

Now the flipper takes possession of the house and begins the rehab. Even a small cosmetic flip can be $10,000 and many flips average $40,000 and higher. Construction supplies stores like Lowes and Home Depot are the big beneficiaries of a good chunk of this rehab budget. In addition to roofers, electricians, plumbers, carpenters, and laborers. Assuming the professional trades do not rely on flippers for a majority of their business, I think it is a fair assumption that laborers do rely on flippers for regular work. This helps the laborers to pay for housing, utility bills, clothing, and groceries.

The purchase of the flip may be an off-market deal between only the flipper and the selling homeowner. Once the flip is complete there are still several people that may be involved in the sale such as, a cleaning company, a photographer, and a company to stage the flip. The flip will likely be listed with a real estate agent. This agent earns a commission on the sale.

The rehab, if done correctly, increases the value of the property. Once the flip is sold to a new owner the property taxes will likely increase based on the increased sale price of the house. This increases property tax revenue.

Then there are the profits from the sale of the flip. It is very likely that some of the flip profits will be put into the economy by the flipper via the same ways their employees put money into the economy, i.e. food, clothing, groceries, education, etc. That is the basics. Flip profits could be used to invest in other deals, not only for the flipper but their investment in other type of business ventures. And if they want to keep finding deals, some of those profits need to go back into marketing.

While not related to a specific flip, here are some other ways that the activity of flippers positively impacts the economy. Many flippers are organized as LLCs or S Corps. Flippers may hire an attorney or CPA to create these legal entities. There are also fees to file annual reports in the state where these entities are domiciled. Every entity will need to file a federal tax return and depending on the state, a state tax return, so more work for CPAs. If it is a large flipping company, they may hire full time staff for bookkeeping, customer service, as well as plumbers, electricians, and laborers.

Look at all the economic touch-points just involved with one flip! Now multiply that by a few thousand flips that may be going on around the country at any one time and you can start to get an idea of the economic force that flipping brings to the economy. While the act of flipping can be narrowly defined, its economic impact is broad and deep.