Home flipping, never exactly an undertaking for the faint-hearted, is getting riskier. Again.

Sound familiar? Americans have long had a love affair with the seductive gamble of snagging cheap fixer-uppers, rehabbing ’em, then reselling fast, hopefully for a sweet, sweet profit. But this national obsession became a national nightmare during the housing crash, when swollen real estate portfolios of everyday folks—pumped up by low- or no-credit mortgages—became financial anvils, dragging many under water. As the market bounced back, so, finally, did flipping.

Now there’s a new factor raising stress levels and blood pressures anew: the current slowdown in the housing market, with prices actually starting to fall in some cities. If those prices drop too far, too fast, then flippers can lose value on homes even as they work to improve them. So the realtor.com® data team figured it was time to find out where home U.S. home flipping is up—and down—the most. This isn’t just important for would-be flippers; it’s also a critical factor in predicting where those key markets are heading.

So what did we find? The markets with the biggest drop in flips are those where prices are slowing down, such as larger coastal cities where costs got ahead of what buyers could afford. The places where flips are up tend to be smaller, more affordable cities getting influxes of new residents. And perhaps most surprisingly, some of the areas where this sort of speculative real estate investment contributed most to the last bubble, like Las Vegas and Phoenix, are where flipping is booming yet again.

Here’s what’s not surprising: Over the past four years home-flipping profits have gradually shrunk, from returns of 42% over purchase prices down to 38%. And that drop is much bigger than it sounds, because it doesn’t factor in renovation and remodeling costs—which can surpass 20% of the purchase price, and are rising in many places.  But even as returns shrink, the overall number of flips grew 3.5% in September compared with a year earlier, according to a realtor.com analysis of home sales.

Reality check: A slowing housing market alone won’t be enough to fully derail home flips. As it turns out, these rehabbed abodes can be catnip to price-sensitive millennials.

Millennials “want to move into a home that requires minimal work,” says Charles Tassell, chief operating officer at National Real Estate Investors Association. “A house that has already been rehabbed or flipped [and is priced lower than new construction] is really what they are looking for.”

To identify the housing markets where the number of home flips are up and down the most, we looked at home sales in the 200 largest metropolitan areas* for July, August, and September 2018 and compared them with the same period a year prior. We defined a home flip as any type of home bought and resold within a three- to 12-month period. We included only those that sold for more than the purchase price and excluded deals that ended in foreclosure.

Now let’s start by finding America’s flip-tastic meccas.

Metros where flipping is up the most

Claire Widman


1. Raleigh, NC

Median home price: $340,000
Increase in home flips: 63.4%
Difference between purchase and sale prices: 32%

Homes in Raleigh


Full-time home flipper Uriah Dortch always does his research to determine how much he’s willing to bid on foreclosed properties before he arrives at the home auctions at local courthouses. But these days Dortch, who flipped more than 20 homes over the past year, is seeing lots of new faces at these auctions as more investors get into the game.

“My heart still races when they start, even after [having been to] hundreds of auctions,” Dortch says. “But competition really went crazy during bidding this year.”

Why is flipping so hot in Raleigh right now? The city’s strong economy and growing tech sector mean many amateurs have more cash on hand to invest.

And all these new flippers are bidding up prices. To find deals, big players like Dortch are moving onto more out-of-the-way neighborhoods. He’s now keen on Northeast Raleigh, where homes built in the 1960s and 1970s can sell at auction for under $150,000. But many folks will then spend tens of thousands of dollars more on repairs in the hope of selling the properties for between $275,000 to $320,000. It’s not a bad return—if everything goes right!

2. Charlotte, NC

Median home price: $323,300
Increase in home flips: 42.5%
Difference between purchase and sale prices: 36%

Home in Belmont


Honeywell, a Fortune 100 electronics manufacturer, announced in November that it is relocating its global headquarters from Morris Plains, NJ, to Charlotte. Relocations like this are bringing people to town who are looking to buy a move-in ready home. And that’s creating an opportunity for investors to go into up-and-coming Charlotte neighborhoods to snap up well-priced older homes that are less than picture-perfect.

New coffee shops and bars seem to be opening every place you look in Belmont, a suburban neighborhood that’s quickly changing as folks with more money start to move in. The flippers are keeping busy there; they’re predominantly buying older, one-story homes with small porches for under $200,000 and modernizing them. And the odds of a quick and profitable resale are in their favor.

3. Orlando, FL

Median home price: $300,000
Increase in home flips: 37.1%
Difference between purchase and sale prices: 41%

More and more people are being welcomed to Orlando


When folks pack their bags and head for Orlando these days, they aren’t just going to Disney World. In fact, only four metros in the country are seeing more folks moving in. Many of these new residents are coming from more expensive cities in the Northeast and don’t want to blow their money on a fancy, brand-new home. So they’re choosing renovated residences instead.

“If you want to be in the right school district with the right price without going over budget, then these renovated flip homes are what you want,” says local real estate agent Rose Kemp of Re/Max Town Centre. “They are move-in ready, and the closest thing to new construction that many [people] can afford.”

But as the ranks of local flippers continue to swell, their margins are going down. To keep profits up, the savviest flippers are looking about an hour outside of the city, in places such as Lake County. Older ranch houses in need of repairs go for under $150,000 and can later be sold for around $250,000. The homes here are minutes away from the county’s many lakes (hence the name), and attract loads of retirees.

4. Phoenix, AZ

Median home price: $330,000
Increase in home flips: 35.7%
Difference between purchase and sale prices: 36%

Phoenix, AZ


In raw numbers, there are more home flips in Phoenix than anywhere else in the nation. And it shows: There are scores of local real estate investment groups on Facebook and Meetup.com, and the place even inspired its own (short-lived) HGTV show, “Phoenix Flipped,” in 2017. So how can this huge flipping market keep growing? Well, with more folks and retirees moving in from higher-cost West Coast states, there’s high demand for remodeled homes.

To find deals, Phoenix flippers are busy cold-calling, mailing, and even going door to door to try to talk folks into selling them their homes. Rehabbers are snagging older homes that need a lot more work.

But newbie flippers need to understand flipping isn’t cheap. The costs here for hiring tradesmen for drywall, plumbing, or electrical work just keep going up. So flippers in the Phoenix market who know how to use a hammer have a big advantage.

5. Las Vegas, NV

Median home price: $320,000
Increase in home flips: 33.7%
Difference between purchase and sale prices: 38%

A flipping opportunity in Vegas


Las Vegas was one of the hardest-hit cities when the housing bubble burst more than a decade ago. Small-time flippers were taken to the cleaners when home prices tanked and mass foreclosures ensued. But with home prices in Vegas rebounding, more mom-and-pop investors are poking their head out of their shell again.

“The previous recession has had a huge influence. Everyone has that in the back of their mind,” says Bryan Kyle, a real estate agent and property manager at First Serve Realty in Las Vegas. Since last year, home prices are up nearly 12.3% year over year. That’s enough for some folks to forget about past losses.

Particularly appealing to investors is the eastern section of the city, where older houses in need of some sprucing up still go for under $150,000.

The rest of the top 10 metros seeing the biggest uptick in home flipping are Oklahoma City, OK; Houston; Providence, RI; Atlanta; and Detroit.

OK, now let’s take a look at the cities where the fix-and-flip crowd is taking a breather.

Metros where flipping is down the most

Claire Widman

1. Columbus, OH

Median home price: $230,000
Increase in home flips: -18.8%
Difference between purchase and sale prices: 36%

Homes in Italian Village in Columbus


The Columbus neighborhood of Italian Village is a Midwestern hipster haven, complete with funky shops, weekend beer crawls, and newly added bike lanes on its brick streets. Many of the younger buyers in the neighborhood are attracted to newly renovated homes.

But years of rehabbing century-old, two- and three-story homes with small front porches in trendy areas, including German Village and Victorian Village, has left few remaining flip-friendly properties. So investors have been forced to look elsewhere.

The overall Columbus market is also beginning to slow down after ranking among realtor.com’s hottest markets multiple months this year. Inventory is increasing after two years of declines, offering buyers more options. And it’s partly responsible for median homes prices rising just 5% year over year in December—compared with the 18% annual uptick in 2017.

“We pretty much hit the apex of pricing this summer,” says Lee Ritchie, a local real estate agent at Re/Max Metro Plus. As the market has cooled, so has flipping.  “After Labor Day, we’ve seen a market lull.”

2. Cape Coral, FL

Median home price: $299,100
Increase in home flips: -14.4%
Difference between purchase and sale prices: 40%

Homes along the canal in Cape Coral


The 400-mile canal system in Cape Coral runs through the backyards of thousands of homes. This waterway turned into a nightmare in 2017 when Hurricane Irma rolled through town, and the canal overflowed, flooding homes. This was a gut punch to the local housing market, with home values falling 3% in the 12 months following the storm.

Usually when a natural disaster strikes, investors pounce. But this hurricane was coupled with overbuilding in the area, keeping prices down. Flipped properties aren’t as appealing to investors or buyers when homes values are falling and inventory is rising.

“We’re in a declining market,” says local real estate broker Mike Lombardo, of Old Glory Realty. Some Cape Coral home flippers are scared that their investments will lose value during the three or four months it takes to remodel the home.

3. Virginia Beach, VA

Median home price: $279,100
Increase in home flips: -10.6%
Difference between purchase and sale prices: 60%

A fixer-upper in Virginia Beach


Nearly 20 million vacationers visit Virginia Beach every year, with plans to parasail, boogie board, and work on their tan. And when they’re here, they need places to stay. For a long time flippers looked to rehab homes in desirable areas along the beach that could either be sold right away or rented to these tourists. But those beach homes, with prices often exceeding $400,000, are harder to find and riskier to flip these days.

The Virginia Beach flipping game has lots of small-budget flippers, who buy an investment property only if it comes at a reasonable price. But with so few foreclosures these days, those deals are getting scarcer. Now flippers are scouring properties in smaller, nearby cities in the region, such as Newport News. The median price there is under $200,000, and there are lots of older, two-story houses that could use some work.

4. Riverside, CA

Median home price: $387,000
Increase in home flips: -10.6%
Difference between purchase and sale prices: 37%

Riverside, CA


Mom-and-pop investors who can’t pay all cash for flips often turn to loans that require large deposits. And as home prices in Riverside have jumped from $289,000 in 2013 to just under $400,000, more would-be home rehabbers are scared off by these high price tags.

Expensive properties wouldn’t be so bad if it weren’t for the current uncertainty in the market. Prices rose only 3.2% year over year in December, after jumping 7% in 2017. Plus, the number of homes in Riverside seeing price cuts on realtor.com in November is 50.5% higher than the same month last year.

So investors don’t want to spend a bundle on a property, sink even more into repairs, and learn they can’t recoup their losses because prices have sunk even further.

5. Portland, OR

Median home price: $453,100
Increase in home flips: -10.4%
Difference between purchase and sale prices: 37%

Portland, OR


After years of price hikes, Portland’s housing market is finally coming back down to earth. Median list prices are up a tepid 1% annually, and more abodes are experiencing price cuts. This has given prospective flippers pause.

“Some are holding off until prices get cheaper or they can buy during a crash,” says Ben Ulloa, who owns Ulloa Construction, a flipping company in Portland. “[It] seems like some people want a version of 2008.”

But while home flips are down in Portland, there is still money to be made. That could mean traveling out of the city to Yamhill County, where dated, single-family homes can be bought at around $200,000. And he says flippers should have an exit strategy, like being willing to rent out the flip for a while if prices aren’t where they expected.

“A lot [of first-time flippers] are thinking they’ll make $50,000 or $75,000 because they’ve been watching HGTV. But a lot of times they break even or lose money on it,” Ulloa says.

The rest of the top 10 metros seeing the smallest uptick in home flipping are Seattle; San Diego; Sacramento, CA; Richmond, VA; and Miami.

* A metropolitan statistical area is a designation that includes the urban core of a city and the surrounding smaller towns and cities. 

Data sources: realtor.com and CoreLogic

The post Real Estate Slowdown Rattles Investors: Where Flipping Is Down (and Up) the Most appeared first on Real Estate News & Insights | realtor.com®.

Article From: "Lance Lambert"   Read full article

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