The truth about the average home flipping profit

According to RealtyTracs Q1, 2015 U.S. Home Flipping Report, a total of 17,309 homes were sold as part of an arm’s-length sale for the second time in a 12-month period. The common term for that is “flipping.” Nationally, completed flips accounted for 4% of all single-family home sales in the United States during the quarter, the lowest percentage since the second quarter of 2011, when 3.4% of sales were completed flips.

While the pace of housing flips nationally has slowed, the gross profit from U.S. single-family homes bought and resold within 12 months hit a record average $72,450, or 35.1% of the flippers purchase price, in the first quarter. Average time to flip increases to new high of 176 days.

Well, that sounds amazing that you can make about $70,000 in about 6 months. But truth to be told, this gross profit was calculated as just the resale price less the price that the flipper originally paid for the home.

So, if you purchased the property for $200,000, spent $30,000 for renovation costs and sold it for $275,000. That’s $45,000 profit in 6 months.

Still pretty great, right? But wait, theres more. You will have a Quiet cost. In Realty Flipping TV, they usually do not reveal the Quiet cost to make it as dramatic as possible for the show. Quiet cost consist of Buying cost (Escrow Fee, Inspection Fee etc), Holding Cost (Utilities, Insurance, Property Tax etc), Cost of Money (if you use financing), and Selling cost (Escrow Fee, Title Insurance, Home Warranty, Termite Clearance etc).

Full­time flippers may have contractors and real estate agents on their team to help cut costs.  One of our flipper clients owned a construction company (but the pressure is on, they need to perform multiple successful flipping to keep it going). So it is hard to say the average of flipping renovation costs. Below is a chart from Gary Keller’s book “Flip” (Note: this is 2007 figure, the cost of materials are higher today and possibly the labor).

Last year San Diego was one of the metro areas with the highest dollar amount of average gross profit on home flips, $116,330, down from a 2013 (and again this is not include the cost of renovations or Quiet cost).

Inventory is so low and it is hard to find flipping opportunities. One fixer property in Bankers Hill got the more than 20 offers right away. With the depletion of available distressed homes on the market over the past two years, more investors are shifting to investing in multifamily properties and away from single­family homes, according to a CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) survey of its members about their interactions with investors.

But there are still good opportunities for flippers. This year so far, San Diego had 304 flips, 48.1% down from a year ago. One of our flipper clients is currently finishing up the property in North Park that he purchased in January.

Because property value appreciation has slowed down, potential flippers need to be extra careful and realistic, resist the urge to exceed your maximum offer,and work with reliable professionals who can help you achieve your goals.

If you are looking for flipping properties, contact us.

 

By | 2017-05-23T22:19:48+00:00 May 23rd, 2015|0 Comments
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