High-EndFlipping Centered in Four Coastal California Markets Along with NewYork
Former Flipping Hot SpotsPhoenix, Tampa and Orlando See Marked SlowDowns
IRVINE, Calif. – Oct. 17, 2013– RealtyTrac® (www.realtytrac.com), thenation’s leading source for comprehensive housing data, today released its Q32013 Home Flipping Report, which shows 32,993single family home flips — where a home is purchased andsubsequently sold again within six months — in the third quarter of 2013, down35 percent from the second quarter and down 13 percent from the third quarterof 2012.
The report also shows that realestate investors made an average gross profit of $54,927 on single family homeflips in the third quarter. That was up 12 percent from an average gross returnof $48,893 in the third quarter of 2012.
The higher grossprofit was driven in part by an increase in high-end flips on homes that weresold by flippers for $750,000 or more. A total of 968 high-end homes nationwidewere flipped in the third quarter, down 13 percent from the previous quarterbut up 34 percent from a year ago. More than three-fourths of all high-endflips were in five markets: the New York metro area and four coastal Californiamarkets — Los Angeles, San Francisco, San Jose and San Diego. Flipson homes priced between $1 million and $2 million increased 42 percent yearover year, while flips on homes priced between $2 million and $5 millionincreased 350 percent year over year.
“Increasing homeprices over the past 18 months combined with decreasing foreclosures havecreated a market less favorable to the high quantity of middle- to low-endbread-and-butter flips that we saw late last year and early this year,” saidDaren Blomquist, vice president at RealtyTrac. “But the sharp rise in high-endflipping indicates there is still good money to be made for flippers willingand able to take on the additional risk of buying and rehabbing more expensivehomes. With that higher risk also comes the potential for higher reward. Theaverage gross profit on each high-end flip equals more than four times theaverage gross profit on each flipped home in the lower price ranges.
The number of single familyhomes flipped in the third quarter decreased from the previous quarter and ayear ago nationally, but flipping numbers were still up from a year ago in somemarkets such as Los Angeles (11 percent increase), New York (14 percentincrease), Detroit (13 percent increase), Atlanta (32 percent increase), LasVegas (9 percent increase) Chicago (28 percent increase) and Seattle (23percent increase).
Meanwhile home flipping decreasedsubstantially from a year ago in several former flipping hot spots such as Phoenix(37 percent decrease), Tampa (47 percent decrease), Orlando (28 percentdecrease), and Stockton, Calif. (down 37percent).
Broker and Flipperperspectives
“We’ve seen a noticeable decrease in thenumber of flipped homes throughout central Ohio in the third quarter,” saidMichael Mahon, executive vice president/broker of HERRealtors, covering the Cincinnati, Columbus and Dayton, Ohiomarkets. “The decrease is likely due to increasing rental rates and adecrease in the overall supply of REOs being released on themarket.”
“As rent and home prices escalate and the number ofavailable REOs continue to decline there are fewer people who are buying homesto flip. House flippers are kind of a misnomer as they’ve turned intowhat I like to call ‘holders’,” said Sheldon Detrick, CEO of PrudentialDetrick/Alliance Realty covering the Oklahoma City and Tulsa markets. “Being a house flipper meant buy it, paint it, sell it. Now it’sturned into buy it, paint it, rent it, and hold it.”
“Many ofthe urban flipping hot spots such as Los Angeles, New York and Atlanta havemany areas in disrepair with low-priced inventory, making flipping anattractive option. Additionally, home price increases coupled with fewerforeclosures are creating a shortage of inventory with enough spread forprofitable flipping,” said Doug Clark, star of Spike TV’s Flip Men. “Thecontinued slow pace of new home construction has created a gap in the inventorytoday’s buyers desire. They want more modern homes with the latestfeatures, and the new home builders aren’t meeting the demand. Flippers can often incorporate these features and get them into the pipelinevery quickly.”
RealtyTracanalyzed sales deed data and automated valuation data for this report. A singlefamily home flip was any transaction that occurred in the third quarter where aprevious sale on the same property had occurred within the last six months. Todetermine the top 15 markets for profitable flipping, RealtyTrac narrowed themetro list to only those with at least 100 flips in the third quarter and whereflipping had increased from the previous year sorted by total gross profit, indescending order.
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