If you’re among the many people who watch television programs such as Flip or Flop or Flipping the Block and think you can become a master flipper yourself, you’re not alone.
The frenzy for flipping – which refers to homes that have been purchased and sold within one year – echoes the height of the housing bubble before it burst, but most industry experts say the market dynamics are different this time.
“The housing market is in full boom mode, with prices up and homes selling quickly and consistently, which gives flippers more confidence to jump into the market,” said Daren Blomquist, senior vice president of ATTOM Data Solutions, an Irvine, California-based property data firm. “At the same time, they don’t have to compete against a flood of new construction like they did during the last spike in flipping in 2005-06, when home builders were building like crazy.”
Blomquist said today’s flippers often go into older neighborhoods and create like-new houses that serve buyers who might prefer to purchase a new house but cannot find one in their price range.
After the housing bubble burst, investors were purchasing distressed properties and foreclosures, and holding them for rental income and to wait for their value to increase. Rising housing prices and low inventory in recent years have shifted the priorities of real estate investors.
“About a year or so ago, we saw that investors purchasing property on Auction.com flipped from holding their properties to flipping them in the majority of markets,” said Rick Sharga, chief marketing officer of Ten-X, an online real estate marketplace that owns Auction.com, in Irvine, Calif. “While these investors can sell their property within three or four months, the investment return isn’t quite as high as it was during the housing bubble, depending on the cost of repairs.”
Another difference from the 2005-06 flipping frenzy, Blomquist said, is that loose lending drove that market at an even faster pace.
“It was easy to buy places without cash, so a lot of flippers would buy places and not bother to fix them up,” he said. “They would use an exotic loan that required them to make almost no payment at all and then just sell within six months for a profit.”
Flippers, particularly after the housing bubble burst, sometimes have had a bad reputation as damaging neighborhoods by driving up prices too quickly and by forcing first-time buyers out of the market when they can’t compete for entry-level houses.
“A house that’s been flipped sells on average for $60,000 more nationwide when it’s been rehabbed,” Blomquist said. “But we see it as a problem only if flips become too big a part of the market, such as more than 7 or 8 percent of all sales.”