Flipping houses is still a very popular phenomenon on reality television, but what about in real life? Is flipping still a viable investment strategy or has it fallen by the wayside?
To clarify, a flip is defined as a home bought and re-sold within 6 months. Based on numbers from Realtytrac, flipping continues to hold its appeal evidenced by the 156,862 home flips in 2013. Those numbers are up 16% from 2012 and 114% from 2011. Reportedly only 21% of all flips in 2013 were from foreclosures; the majority of flips came from the higher end market of $400,000 or more, with the average profit coming in at $58,081.
Experts say flipping is alive and well, but would-be flippers may face challenges in finding good deals because of low inventory. Also, strict financing requirements may pose some obstacles to investors obtaining traditional financing at a reasonable cost.
Flipping as a strategy is, of course, better suited to some areas than others, and places like Virginia Beach has done extremely well with flipped properties which have leapt 141% since 2011. Also, locations such as Jacksonville (92%); Baltimore (88%); and Atlanta (79%) have all experienced impressive jumps in flip transactions since 2011.
USA Today reported the six best states to flip residential properties in 2014 are California, Washington, New Jersey, New York, Maryland, and Massachusetts. For those wondering what those states have in common, here’s a hint: politics. Heavy regulation has dramatically slowed the foreclosure process in these states, extending the life of the foreclosure wave which has already crashed and passed by elsewhere.
Massachusetts reportedly topped the list with the most profit on average as a result of flipped homes, while California tops the list for the last three years of most flipped homes among all of the states. California’s numbers increased from 14,480 to 21,152 in a three year span. California also tops the list for most profitable metro areas for home flipping with seven cities making the list for most profitable. California’s high numbers are believed to be attributed to high foreclosure numbers during that same period.
Maryland investors flipped 3,522 homes in 2013 (largely due to their fourth highest foreclosure ranking in the country). The average profit for investors in Maryland was between $100,000 and $112,000 in 2013.
New York and New Jersey ranked fourth and fifth on the list of best places to flip for their high profit appeal as well as notable numbers of homes flipped. New York had a reported $92,000 in profits while New Jersey investors profited more than $100,000 on average per flip.
Washington State rounded out the list of six states with the highest profits from flips and the highest number of flips per homes sold. Washington investors made an average profit of $100,000.
Investors interested in flipping are warned to be aware of the many potential pitfalls; after all, the fundamentals of real estate investing still apply.
For example, financing for a flip often means high interest rates which could quickly eat away at profit or make a deal otherwise unworthy of the time and effort put into it.
Investors should be vigilant in looking for that ‘magic’ number to pay for a deal which makes it all come together smoothly and with minimal effort. Never try to force the numbers to work here (or really anywhere – it will usually end in tears).
Perhaps just as important as the purchase price an investor pays for the property is the contractors she chooses to provide the actual repair or remodel. Even when all else is next to perfect, the wrong contractor could make one mistake (or intentional underestimate) and end up costing the investor several thousand more than planned, even with a contingency. As time is money with flips, contractors can often take longer than planned causing delay after delay while the dollars continue to add up.
Experienced flippers know that the last piece of the puzzle, the final sales price, is the first thing they should know before buying the property in the first place. Establishing a close relationship with a Realtor who is local market expert will help investors avoid costly missteps, and will help shorten the investor’s time horizon for carrying the home and its liabilities.
Do you have experience flipping houses? Is your local market flip-friendly or not? Tell us about your best and worst house flipping experience.