Despite tight real estate market, DFW house flippers still take the leap

Steve Brown of The Dallas Morning News

House flipping has become the go-to method for profiting from the American dream.

Television shows glamorize the business of buying rundown houses and flipping them for a fast profit.

Of course, those reality shows often gloss over the perils of buying real estate to make a quick buck.

And no one denies that flippers and speculators played a significant role in the crash that devastated residential markets in many parts of the country a decade ago.

Regardless, flippers are here to stay.

Even in today’s tight housing market, where houses can trade before they even hit the multiple listing service, flippers are finding deals.

The number of house flips in the Dallas-Fort Worth area jumped more than 20 percent in the first quarter, according to RealtyTrac. The California-based housing research and marketing firm estimates that there were almost 1,000 home flips in this area during the quarter.

Nationwide, home flips were only 3 percent higher than in first quarter of 2015, according to RealtyTrac’s Daren Blomquist.

The spike in North Texas home prices — up 40 percent in the last five years — is drawing flippers even if they have a hard time finding properties to buy, Blomquist said.

“When you have a market that is appreciating, that’s what drives the flippers in,” he said. “You also have people who have bought a home and it’s appreciated more than they thought, and they think it’s a good flip.

“The tight market puts upward pressure on prices and helps with the flipping,” Blomquist said. “It does make it harder for flippers to find a good deal.”

RealtyTrac estimates that flipper sales made up 5.8 percent of total home purchases in the D-FW area in the first three months of 2016. That’s slightly less than the nationwide average of 6.6 percent.

The North Texas neighorhoods with the most flips this year are in Plano, Mesquite and Carrollton, RealtyTrac found.

10% of activity

Flippers account for more than 10 percent of the housing activity in about 10 U.S. markets, including Memphis, Tampa and Las Vegas.

And about a third of the original purchases are all-cash, the data shows.

Distressed properties typically attract flippers and speculators, but those listings are dwindling in the D-FW area. Fewer than 1 percent of D-FW area homes are in foreclosure, and the number of filings has fallen more than 20 percent from a year ago.

“The average gross flipping profit is also up in D-FW, at $48,961 per flip in first quarter 2016, compared to $39,102 a year ago,” Blomquist said.

Hunting for profits

But finding profit is a lot tougher in a market like North Texas, where home prices are already cranked up.

“We see average investors paying way too much for the houses they are buying,” said David Hicks, co-president of Dallas-based HomeVestors.

RealtyTrac considers any repeat home sale that takes place within a year as a flip. Most flippers want to turn a property in three to six months, according to RealtyTrac.

HomeVestors is a 20-year-old company that has franchises for investors around the country who buy and sell houses. Its members bought about 800 houses in the D-FW area last year.

Hicks said his buyers typically fix up a property and sell it in around 90 to 120 days to another investor or an owner-occupant.

Most of the houses HomeVestors members buy were built before 1980 and are priced between $100,000 and $250,000. They are typically less than 1,500 square feet.

“We see a lot of demand for the houses we buy and think it’s still a great time to be in this business,” Hicks said. “We don’t see any reason that won’t continue.”

If there is a downside to the home flipping business, it’s probably that the sales contribute to rising prices, analysts say.

“At least in part because of the rising investor activity, we are seeing home prices rising faster than wages and therefore deteriorating affordability in several Dallas-area counties,” Blomquist said.

Twitter: @SteveBrownDMN