When the real estate market started its downward slide around five years ago, house flippers were one of many real estate investing groups who were caught with their hands in the cookie jar. Flipping houses had become very profitable and fairly easy in the boom years, and the market had become flooded with flippers who had little knowledge of real estate investment or construction practices. When price appreciation turned to depreciation, few of these investment newcomers had the resources or the foresight to maintain their finances and subsequently many of these homes fell into foreclosure.
Many people saw the downfall of the flipping industry as a positive for the market, since flipping was often associated with sloppy repair work and cheap building materials. While that was true in some cases, the negative connotation attached to the flipper label is not necessarily appropriate in all cases. There are many companies who are very good at high quality remodeling of homes in quick order, and actually have a positive impact on communities. Companies that have the finances and experience to refurbish a dilapidated home in a short amount of time at a manageable cost allow neighborhoods to remove eyesore properties in quick order, and create the potential for more pride of ownership and long-term residents in that community. Simply put, there are a wide variety of flippers.
Now that we're seeing an uptick in home prices in many markets across the country, there are signs that house flipping could be making a comeback. Prices may be rising slightly, but they are still down 20%-50% in many of these markets since the peak. With homes at such discounted prices, and record-low interest rates making financing inexpensive, companies with the available funds to make quick repairs to homes are snapping up bank-owned and distressed properties in droves. Some are being turned into rentals, but many are being sold again a short time later.
RealtyTrac released some statistics on recent house flipping that, while they deserve some scrutiny, do point to a potential rise. They show an increase of 25% in homes being flipped, with an average profit of nearly $30,000. There are many assumptions involved in these calculations, as they're most likely tied to the short time between two sales of the same home, which may indicate a flip but may not necessarily. Also, without knowing the individual home flipper's costs of repairs, the profit numbers are likely a very rough estimate and may be quite a bit lower. Still, estimates of nearly 10,000 homes being flipped in Phoenix, AZ in the first half of 2012 signal a significant change in the confidence of house flippers.
Inventory is tight in many markets, including Seattle which has 45% less homes on the market this year than one year ago. This is a serious restraint on the ability of flippers to acquire properties. However, prices are low, interest rates are low, and price appreciation creates a more forgiving environment for house flippers' bottom line. The market seems to be ripe for house flippers who understand the business and have the financial capacity to purchase properties in today's market.
Data Source: NWMLS - The Northwest Multiple Listing Service did not compile or publish this information.