Flipping activity ebbs and flows with the property market. The housing bubble of the early 2000s created a thriving flipping economy, but it was also the precursor to the housing crisis of 2008. Post-crisis, the plethora of foreclosed homes available for sale at rock-bottom prices reignited the thriving flipping industry once again.
With such unpredictable economic ups and downs, how can investors tell whether now is a good time to flip properties? What factors should they consider before taking on projects?
ATTOM’s extensive property data, along with its detailed home-flipping market analysis, provide the answers.
Flipping — The Magic and the Mystery of Flipping
The goal of a house flipper is to buy a property as cheaply as possible, renovate it as efficiently as possible, and then sell it as soon as possible. Excel in all three areas, and the rewards could be magical. At least, that’s the theory.
The term “flip” indicates the need for speed, but unpredictable factors can slow a project down, increase costs, and reduce the resulting profits. Like any investment, real estate flipping has risks.
For example, the market might turn, and house prices might drop while an investor is in the middle of a project. The flipper can always hold on to the property until the market recovers and they can sell it at a profit, but the timeframe is unknown.
A flipper might have trouble finding or keeping a reliable contractor to do renovation work. This could drastically increase the project’s timeline, the cost of raw materials, and the cost of the contracting work.
These are examples of the more predictable events that could jeopardize a flipping venture, but there are also more mysterious and unlikely events that no one ever predicts, like natural disasters or pandemics. During COVID-19, global supply chain delays increased costs in obtaining construction materials. According to Construction Citizen, the price of lumber and plywood increased by 50 percent from January 2020 to early 2021, squeezing profit margins for house flippers.
The catalysts for the ups and downs in the flipping industry over the past decades, have run the gamut.
The Ebbs and Flows of the Flipping Industry
Flipping entered its heyday in 2005, when 8.2 percent of single-family home sales were flips. Leading up to the housing bubble of the early to mid-2000s, housing prices were rapidly increasing, which fueled the flipping craze.
The emergence of mortgage-backed securities and derivatives made it easier for people to obtain mortgages, further inflating housing prices and flip rates. Flip rates were shockingly high in areas like Las Vegas and Florida, where they reached close to 20 percent, and rates reached around 16 percent in Phoenix.
Unfortunately, the bubble reached the limits of its bandwidth in 2008, and the housing market collapsed. In 2009, in Phoenix, homes lost 56 percent of their value on average, and lenders foreclosed on tens of thousands of families. Flippers in mid-project faced selling homes at low prices and lost profits.
But this period of volatility was also an opportunity for flippers to buy up cheap properties. With so many foreclosed properties going cheap on the market, flipping boomed once again.
There’s money to be made in volatile markets, but what about when markets are stable? When the housing markets are less explosive, profit margins for flippers grow thinner. To make flipping worth their while, investors and flippers need to choose properties wisely.
Investors need to carefully analyze what characteristics will yield more profit, what locations have the most potential, the neighborhood amenities, the price of comps in that area, the schools, market trends, and more. They also need to understand the consumer and balance how much to spend on upgrades. Should they choose high-end appliances and luxury upgrades or take a more budget approach with basic upgrades? What will future sales prices be, and what are the potential margins?
There’s no doubt that it is harder now to make a profit flipping. In some cases, it comes down to the age of the property. At the height of the bubble, in Phoenix for example, the typical flipped home was about 10 years old. Today, the average flipped property is 30 years old and needs a lot more work.
An older home typically fetches a lower price, and an older home that looks like new inside and requires little work is an attractive option for homebuyers. Thus, if a flipper can limit the cost of renovations, there is margin to be had flipping.
The Current State of the Flipping Industry
The world of real estate is always changing. Our data show that the home flipping market saw a nearly 30 percent drop through 2023, but today, house flipping is growing again.
Much of the growth in flipping is due to rising property prices. Some speculators are predicting another bubble, while others say fears are overblown because mortgage lending practices have been reined in since the early 2000s. But with the Federal Reserve rumored to be considering a cut in interest rates, more people will buy homes and flip them.
The most recent data indicate that flippers are enjoying an uptick in profits. According to ATTOM, in the first quarter of 2024, the typical nationwide resale price on flipped homes increased by 4.1 percent over the fourth quarter of 2023. The increase outpaced the 2.1 percent rise in median prices that recent home flippers had typically seen when buying their properties. That has increased property-flipping margins.
What Factors Affect the Flipping Market?
For those looking for good flipping prospects, consumer trends, economic indicators, population trends, and neighborhood data are key factors for risk assessment.
- Consumer trends: Look at what type of homes are selling quickly in your target area. Are they old or new? Do they have high-end or budget upgrades? If older homes with budget upgrades are selling well, look at the prices of older homes and calculate if you can sell them at a high enough price to make a good margin once you’ve done the work.
- Economic indicators: Are jobs and wages increasing in your area? Are there buyers for the type of home you want to renovate at the price you want to sell it. Is there community investment in the area that might cause home prices to rise. For example, is the government investing in transportation and schools? Is there commercial development?
- Population trends: Is the population increasing in your area? If so, in what age groups? Is there a demand for a certain size or type of home because of the demographic changes? Use data and trends to determine how quickly you could sell your renovated property.
- Neighborhoods: Are local neighborhoods undergoing revivals? For example, are there new parks, new retail outlets, new restaurants. Are these amenities attracting a demographic that would want to buy your property?
So many questions, but where can investors go to get the answers? The good news is that you don’t have to do the heavy lifting where property research is concerned. ATTOM provides all the property data you need to assess a potential flipping market from trends in home prices to neighborhood information to climate and risk data.
ATTOM Is Meeting Flippers’ Research Needs
In addition to copious data on property characteristics and boundary data, ATTOM also produces a home flipping report with a market analysis on trends and hot markets for flippers. The report includes prices for investor-financed flips, all-cash purchased flips, and distressed property flips with prices at the state, metropolitan area, and county levels.
Flipping or not, ATTOM can meet all your property data needs and help you decide whether an investment will flip or flop.
Contact an ATTOM representative for data, or read our latest home flipping report.
