Buying and renovating homes, then quickly selling them for a higher price, is still a money-making venture, but the art of house flipping isn’t as profitable it once was, new real estate data shows.
Investors flipped more than 407,000 single-family homes and condos last year, up 58% from 2020, according to data released Thursday by property data firm ATTOM. The average windfall on those sales: $67,900. That may seem like a tidy profit, but it’s the lowest amount since the housing bust triggered the 2008 financial crisis.
ATTOM has measured house flipping activity since 2005 and found that the practice was most profitable, in pure dollars, in 2021 — when investors pocketed an average $70,000 per property. Investors profitted the least amount in 2008, racking in a mere $30,000 per flip. House flipping was especially lucrative in 2013 and 2016, when investors generated an average 51% return on investment on each property.
The main reason flipping profits are down is the same economic trend that has made trips to the grocery store painful for so many consumers, namely, inflation, which has driven up the cost of home renovations.
“Overall, the inflationary pressure we see broadly speaking, we’re also seeing in the cost of materials used to improve properties and in labor,” ATTOM CEO Rob Barber told CBS MoneyWatch.
The cost of home improvement projects jumped between 20% and 35% last year, Forbes reported. The median price of revamping your kitchen and main bathroom is $20,000 and $13,500 respectively, according to Houzz, an online home renovation marketplace.
The upshot? Although house flipping can still be fruitful for experienced real estate investors, who can more precisely quantify how much fixing up a property will boost its value, “New folks to the game might be particularly challenged right now,” Barber said.
One challenge for aspiring flippers as the spring home-buying season kicks off: finding something to flip. Sales of existing homes surged 14.5% in February from the previous month, according to the National Association of Realtors — the biggest monthly percentage increase since July 2020, when many city-dwellers were seeking greener pastures to escape the pandemic.
Today, house hunters are snatching up properties in part because they fear that mortgage rates could rise later this spring.
“Spring home buying season started early this year with motivated buyers wanting to take advantage of even the smallest improvements in housing affordability,” Orphe Divounguy, a senior economist at Zillow, told CBS MoneyWatch.
ATTOM compiles flipping activity for individuals who buy, renovate and sell properties as well as corporate operators. It found that investors typically bought a home for $252,100, fixed it up, then resold it for around $320,000 in a process that took roughly 164 days. That’s 12 days longer than it took in 2021.
ATTOM also found that the number of flipped homes increased the most last year in the South and the West — particularly Bremerton, Washington; Jackson, Mississippi; Honolulu, Hawaii; and Prescott, Arizona.
Investors saw the largest profits after flipping homes in New York City, San Francisco, San Jose, Seattle and Washington, D.C., while the lowest profits were in Kansas City, Indianapolis, San Antonio, Houston and Dallas, according to ATTOM.
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