Home flippers ringing up strong profits

The Scotsman Guide - Victor Whitman - September 16, 2016

Home flippers haven’t been this active in years, or made as much money on their deals, according to a new report from Attom Data Solutions. 

Still, it isn’t all good news for aspiring flippers and their lenders. Home flipping involves buying a home, fixing it up, and attempting to resell it for a profit.

“Even though flippers are still making very big profits, the trends are pointing to this becoming an increasingly speculative market,” said Daren Blomquist, senior vice president with Attom Data Solutions.

“The number of flippers is at a nine-year high, meaning more novice flippers are jumping on the flipping bandwagon, and they tend to be not as savvy,” Blomquist told Scotsman Guide News

Some 51,434 single-family homes and condos were flipped in the past second quarter, a six-year high, Attom Data Solutions said. A home sale is labeled a flip if the property was bought and sold within 12 months. The gross profit on the average flip was $62,000, the highest since 2000, the company reported.

Hot spots for flipping remain those markets with a high inventory of distressed properties and markets where homes can be bought for reasonable prices. Despite rising home prices and much lower foreclosures numbers, flippers are still finding deals, Blomquist said.

“Most surprising to me is that we are continuing to see the flippers get pretty deep discounts when they buy the homes,” Blomquist said. “They are still getting, on average, a 26 percent discount below market value when they are purchasing these properties.”

Major cities with lots of home flips in the past quarter, according to Attom Data Solutions, included Tampa, Miami, Orlando, and Jacksonville in Florida; Baltimore, Maryland; New Orleans; Phoenix; Nashville, Tennessee; and Las Vegas.

Lenders say home flipping is going on in all cities, including high-priced markets.

“This is a dynamic that is pretty prevalent almost everywhere,” said Paul Smoot, the director of Wholesale Originations for LenderOne, which specializes in fix-and-flip loans. He said the major difference between higher-priced and lower-priced housing markets is the loan-balance size.

“There are still a lot of distressed sales,” Smoot told Scotsman Guide News. “There are still people experiencing life challenges, so short sales are prevalent, people still trying to get out from under their situation. That is where investors are really jumping in, and succeeding.”

Home flipping has remained a mostly a cash game in this cycle. Just a one-third of home-flip deals are financed through loans, Attom Data Solutions data suggests. Lenders say they’ve been busier this summer, however,.

“It [the demand] is really market specific,” said Stephanie Casper, who heads the bridge-loan operations for Colony American Finance. "More and more, there is financing for this type of product, whether it is a fix-and-flip or to stabilize [the property] to put into some sort of long-term financing. There is always going to be distressed sellers of real estate, whether or not there is a huge downturn or market correction that we saw nine years ago."  

Casper said her company has not relaxed its underwriting to compete with cash and other lenders financing home flippers.

“My underwriters are taking a good hard look of everyone coming through the door just like they always have,” Casper said. “We want to see a little bit of experience, or some sort of story around the real estate investment and the track record.”