Flipping Houses Is Alive and Well

We’re coming into the 4th quarter of 2015, and flipping houses is alive and well right now. But it’s not the same as it was when I got started long ago.

Money is tighter and houses are much more expensive, for two examples of how things have changed. Which might explain the stats revealing houses that are listed by investors flipping them for a profit represent less than 5% of the residential market, on average.

CNBC.com reports, “Home flips made up just 4.5 percent of sales in the second quarter of this year, according to RealtyTrac, down from 4.9 percent a year ago. Flipping returns, however, the gross return on investment, increased to nearly 36 percent, up from 24 percent one year ago.”

My first thought is that putting too much faith in statistics is a good way to get yourself into trouble as an investor. I can tell you that moving into a remodeling project with a confident expectation of 36% gross ROI is probably optimistic for inexperienced real estate investors right now. Take that stat with a couple grains of salt, for sure, at least until you have accumulated some experience and good relationships with contractors and agents.

But it all depends on the location, as usual. A friend told me her daughter attracted a cash buyer weeks before she’d intended to put her 4 bed, 1.5 bath, 100 year-old home on the market in a small town of only 10,000 people in Iowa. But the cash buyer is going to live in the house, she’s not an investor.

Nav Athwal is an attorney and CEO of RealtyShares, a real estate crowdfunding platform, so he’s in the trenches with investors every day. He recently posted the following encouragement to investors on Forbes.com:
“…with prices having returned to pre-recession levels in these [largest] markets, successful flippers are instead turning to alternative markets where volume is greater and prospective returns are higher. These markets include Memphis, Detroit, and Florida communities such as Ocala, Tampa, or Miami—all of which are among the most active and rewarding markets for flippers. With plenty of distressed inventory, affordable entry points, and buyer demand, flippers in these cities are fixing and flipping for record profits.”


And according to Tim Grant’s article in The Pittsburg Post Gazette (Post-Gazette.com) Pittsburg PA has a new nickname, “Flip City.” Grant quotes the following juicy story of interest to any serious residential real estate investor:

“I find the neighborhoods that are most profitable to flip in are the neighborhoods in transition to a higher value,” said Mr. Chaney, co-owner of Penn-Pioneer Enterprises in Trafford. He and his partner, Mark Fichtner, flipped about 40 houses last year.
“They are currently renovating a three-bedroom house in Lawrenceville they bought in 2013 for $38,000. After extensive renovations, they plan to list it for $450,000.”

Needless to say, that partnership stands to make a whole lot more than the 36% average ROI statistic quoted earlier.