Average Gross Profit on Flips Completed in First Quarter at New High of $72,450;
Highest Average Flip Returns in Baltimore, Central Florida, Detroit, Tucson, Pittsburgh;
Markets with Highest Share of Flips Include Memphis, Miami, Tampa, Los Angeles, Detroit
IRVINE, Calif. – May 7, 2015 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q1 2015 U.S. Home Flipping Report, which shows that 17,309 single family homes were flipped — sold as part of an arms-length sale for the second time within a 12-month period — in the first quarter, 4.0 percent of all single family home sales during the quarter.
The average gross profit — the difference between the purchase price and the flipped price — for completed flips in the first quarter was $72,450, up from $65,290 in the previous quarter and up from $61,684 in the first quarter of 2014 to the highest level going back to the first quarter of 2011, the earliest where data is available.
The average gross return on investment (ROI) — average gross profit as a percentage of the average original purchase price — was 35.1 percent for completed flips in the first quarter, down slightly from 35.3 percent in the fourth quarter but up slightly from 35.0 percent in the first quarter of 2014.
“The strong returns for home flippers in the first quarter demonstrates that there is still a need in this recovering real estate market for move-in ready homes rehabbed to more modern tastes, particularly given the dearth of new homes being built,” said Daren Blomquist, vice president at RealtyTrac. “The challenge for flippers in 2015 will be finding inventory to flip. Flippers ideally want to buy distressed homes that provide them with an opportunity to add value in markets where there is good affordability and ample demand from buyers for the finished flip product — whether those buyers are millennials becoming first-time homebuyers, baby boomers purchasing their present or future retirement home, or buy-and-hold real estate investors looking for turnkey rental properties that cash flow.
“Markets with the combination of distressed inventory, affordability and demand that are yielding the best flipping returns include places such as Baltimore, several metros in Central Florida, Detroit, Tucson, Pittsburgh, Memphis and Chicago,” Blomquist continued. “Responsible flippers in these markets can do well by doing good — providing a superior product for buyers and renters — although in some cases this may mean betting on neighborhoods that are somewhere between down-and-out and up-and-coming.”
Markets with the highest average returns on flipped homes
Among markets with at least 50 completed single family home flips in the first quarter, those with the highest average gross ROI were Baltimore (94.1 percent), Deltona-Daytona Beach-Ormond Beach, Florida (74.7 percent), Ocala, Florida (73.9 percent), Lakeland, Florida (62.5 percent), and Detroit (58.3 percent).
Other major markets in the top 20 for highest average gross ROI on homes flipped in the first quarter included Tampa (57.2 percent), Pittsburgh (55.2 percent), Memphis (54.8 percent), Chicago (52.9 percent), Seattle (49.0 percent), New York (47.1 percent), Washington, D.C. (44.2 percent), and Boston (44.0 percent).
“The decline in the number of homes being flipped in the Seattle area is due primarily to two factors: rising prices and low inventory. With the lowest month’s supply of homes in our city’s recorded history, competition is fierce,” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. “So not only are there very few homes for flippers to choose from, but they’re also competing with a mass of buyers who are willing to pay well above market value, and often in cash. These aren’t exactly ideal conditions for investors looking to flip homes and make a profit but those who do will see a good return.”
Markets with highest share of flipped homes
Among markets with at least 50 completed single family home flips in the first quarter, those where flips accounted for the highest percentage of all home sales in the first quarter were Memphis (10.6 percent), Ocala, Florida (8.0 percent), Miami (7.9 percent), Tampa (7.4 percent), and Sarasota, Florida (7.2 percent).
“Savvy investors are still finding opportunities in our robust real estate environment. The distressed inventory is waning but still being liquidated by the lenders, which bodes well for those individuals positioned to remodel and create turnkey properties for new homeowners,” said Mike Pappas, CEO and president of the Keyes Company, covering the South Florida market. “We are witnessing an efficient capitalistic market where all players achieve their goals.”
Other major markets in the top 20 for share of homes flipped in the first quarter included Los Angeles (6.6 percent), Detroit (6.5 percent), Las Vegas (6.3 percent), San Diego (6.1 percent), Virginia Beach (5.9 percent), and Jacksonville, Florida (5.9 percent).
“Flipping can be a tenuous prospect to the uninitiated and even more so in Southern California given the cost to play. Typically, flipping is most profitable either between $100,000 and $200,000 or from $1 to $2 million which is our market here in Orange county,” said Mark Hughes, chief operating officer with First Team Real Estate, covering the Southern California market. “The high percentage of flips in the first quarter continues to point to the ongoing workout of remaining distressed properties and a strong market for non-institutional investors pointing to confidence in a stabilizing, upward trending market.”
More flips going to other investors, fewer to owner-occupants
Of the completed flips on single family homes in the first quarter, 34.7 percent were sold (flipped) to non-owner-occupant buyers — real estate investors and second home buyers — the highest share since the first quarter of 2011. Owner-occupant buyers still purchased the majority of flipped properties, 65.3 percent, but that was down from 67.2 percent in the previous quarter and down from 71.4 percent in the first quarter of 2014. The share of flipped homes sold to owner-occupants peaked in the second quarter of 2012 at 74.1 percent.
Among markets with at least 50 completed flips in the first quarter, those with the highest share of first quarter flipped homes sold to non-owner-occupant buyers — investors or second home buyers — were Grand Rapids, Michigan (87.0 percent), Detroit, Michigan (77.1 percent), Memphis, Tennessee (76.4 percent), and Sarasota, Florida (55.4 percent).
Markets with the highest share of first quarter flipped homes sold to owner-occupant buyers were Virginia Beach, Virginia (88.8 percent), Colorado Springs, Colorado (88.4 percent), Washington-Arlington-Alexandria (86.2 percent), Richmond, Virginia (84.4 percent), and Boston, Massachusetts (83.4 percent).
Average time to flip increases to new high of 176 days
Homes that were flipped in the first quarter took an average of 176 days to complete the flip process — between the first and second purchases — up from 162 days in the fourth quarter and up from 165 days in the first quarter of 2014. The 176-day average for homes flipped in the first quarter was the longest for any quarter going back to Q1 2011, the first quarter for which data was available.
Among markets with at least 50 completed home flips in the first quarter, those with the longest average time to flip were New York (198 days), Baltimore (198 days), Chicago (196 days), Mobile, Alabama (196 days), Charleston, North Carolina (194 days) and Los Angeles (194 days). The average time to complete a home flip increased in five of these six these metro areas compared to a year ago. The only exception was Chicago, where the average time to complete a flip a year ago was 199 days.
Markets where flips completed in the first quarter took the shortest on average were Memphis (133 days), Reno-Sparks, Nevada (147 days), Detroit (148 days), Ocala, Florida (151 days), and Cincinnati (151 days). The average time to complete a flip increased from a year ago in Memphis and Reno but decreased from a year ago in Detroit, Ocala and Cincinnati.
“With a rebounding housing market across Ohio, increased equity and rising prices have limited the ability of many investors to gain inventory in 2015,” said Michael Mahon, president at HER Realtors, covering the Cincinnati, Dayton and Columbus markets in Ohio. “This lack of available inventory has led to a respective decline in the number of housing flips occurring throughout the state.”
More than half of all homes flipped priced between $100,000 and $300,000
More than half of all homes flipped in the first quarter of 2015 sold (flipped) for between $100,000 and $300,000. Homes flipped for between $100,000 and $200,000 accounted for 34 percent of all completed flips in the first quarter, while homes flipped for between $200,000 and $300,000 accounted for 19 percent of all completed flips in the first quarter.
Homes flipped for below $100,000 accounted for 21 percent of all completed flips in the first quarter, while homes flipped for above $300,000 accounted for 26 percent of all completed flips in the first quarter.
Best returns on homes sold between $100,000 and $200,000, $1 million to $2 million
Completed first quarter flips with a flipped price between $100,000 and $200,000 yielded an average gross ROI of 47 percent — the highest of any price range — followed by those with a flipped price between $1 million and $2 million, which generated an average gross ROI of 44 percent.
Completed first quarter flips with a flipped price of less than $50,000 actually generated a gross ROI that was negative 2 percent — the worst return of any price range — followed by those with a flipped price between $750,000 and $1 million, which generated an average gross ROI of 31 percent.
RealtyTrac analyzed sales deed data and automated valuation data for this report. A single family home flip was any transaction that occurred in the first quarter where a previous sale on the same property had occurred within the last 12 months. Average gross profit was calculated by subtracting the average price for the first sale (purchase) from the average price of the second sale (flip). Average gross return on investment was calculated by dividing the average gross profit by the first sale (purchase) price.
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