Flipping Homes: The Trend That Never Went Away

Flipping channels the other day (no pun intended), I came across an old episode of Flip This House. For those who don’t remember the show, or perhaps never even heard of it, Flip This House was a reality show about real estate investors from all over the country (usually in San Antonio, Los Angeles and Atlanta) who buy homes, renovate them as fast as possible, and then try to sell them for a large profit.

It wasn’t that long ago, maybe 8 or 10 years ago, that flipping homes was all the rage in the real estate world. Just watching a few minutes of this show felt like entering a time machine. Have times truly changed that much? Is the idea of flipping a house now antiquated? Flipping a home was very trendy, circa 2006, but the dirty little secret is that it never really went the way of the dodo bird.

Nowadays you will find investors bidding on property online or at live events. These investors are showing a preference for flipping homes rather than holding on to them for renting purposes. It doesn’t matter that the demand for rental housing continues to surge in most markets. Sites like auction.com have found that investors who bid at live auctions show more propensity toward flipping homes purchased, than the investors who purchased properties online.

Right now, according to a recent housing survey, buying property to hold and rent is currently favored over flipping a house. While this is true on average nationwide, it still all depends on the location of the property. Purchasing property to rent is much more common in the Midwest and South, while there is a higher number of homes flipped in the Northeast. Out West, flipping vs renting is about even.

While home-flipping never went away, it certainly isn’t as prevalent as it once was. Long gone are the days of Americans thinking it’s a great way to get rich quick. According to housing data released in February, only 135,000+ family homes were flipped in 2014. That’s about 5.4% of all single-family home sales, which is the lowest share of flips since 2011. There were less than 33,000 flips in the fourth quarter of 2014, representing 5.3% of all single-family home sales. That was down from 12% in 2013. It was estimated that the difference between the purchase price and the flipped price was $65,993 in 2014, which was only up slightly from $65,285 in 2013.

The majority of home-flip deals are now done in cash, due to credit standards being stricter than they were during the first few years of the 2000s. Because of this, a lot of first-time homebuyers who could be potential flippers, are being shut out of the process. With banks tired of getting burned, it is more difficult to get financing deals done for flippers.

Despite all this doom and gloom, here we are in 2015 and the idea of buying and then flipping a house is still around. Flipping continues to be a vital part of real estate markets in the United States. Big cities like Detroit, Los Angeles, Memphis and Miami accounted for over 25% of all single family home sales during the last quarter of 2014. Besides those cities, the highest gross returns were in Baltimore, St. Louis, Jacksonville, and Washington D.C.

Home-flippers are less naive than they were in 2006, and they seem less frightened than they were in 2011. Now in 2015, and looking ahead to 2016, they seem to have figured out the housing economic model. Flipping could be back in style before we know it.