A home flip is a home that has been purchased and then resold within the same year. Typically, homes that are run down or in need of capital improvements and updates are likely candidates. These homes are then rehabilitated and resold on the market for a profit. Recently, ATTOM Data Solutions published their 2020 Home Flipping Report. Overall, 2020 was a banner year for the real estate market. However, the same can not necessarily be said about the home flipping market.
What the data shows
ATTOM Data Solutions’ 2020 U.S. Home Flipping Report found 241,630 single family homes and condos flipped in the United States last year. That’s down 13.1% from 2019 and the lowest point since 2016. This number represented 5.9% of all home sales in the nation, down from 6.3% in 2019 and the same percentage seen in 2018. Overall, gross profits from home flipping increased. However, profit margins decreased for the third straight year.
On average, homes flipped in 2020 generated a gross profit of $66,300. This number was up 6.6% from $62,188 in 2019 and the highest point since at least 2005. The typical gross flipping profit translated into just a 40.5% return on investment (ROI) compared to the original acquisition price. These latest ROI figures (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) were down from 41.5% in 2019, 46.4% in 2018 and more than 10 percentage points lower than decade peaks in 2016 and 2017.
Interestingly, less mortgages were also utilized for home flipping in 2020. The percentage of flipped homes purchased with financing dipped to 41.7% in 2020. This figure is down from 42.3% in 2019 and 41.8% in 2018. Meanwhile, 58.3% of homes flipped in 2020 were paid for with all-cash. This figure is up from 57.7% in 2019 and 58.2% in 2018.
Summary
While home flipping can still be a very profitable endeavor, the recent rise in home prices & materials combined with a tight inventory of homes for sale has certainly impacted this business model. Generally speaking, home flipping takes place in the lower end of the real estate market. With this said, inventory constraints continue to plague the affordable housing market as well.
With regards to South Florida specifically, we continue to see a spike in buyer demand. Many of these buyers are relocating from other states. In particular, Americans relocating from less expensive housings states are more likely to purchase flipped homes.
Do you have questions about the home flipping market in South Florida? It is critical to have local knowledge of the various markets. We can help. Contact Live South Florida Realty, Inc. today!
