House-flipping activity declined in the third quarter of this year, with average gross profits tumbling from an all-time high in the second quarter to $60,800, according to ATTOM Data Solutions Q3 2016 U.S. Home Flipping Report. The average return on investment in the third quarter was 47.1 percent, down from 49.5 percent in the second quarter and 47.9 percent a year ago. All told, 45,718 single-family home and condominium sales in the third quarter were flips.
“While the macro trends of low housing inventory and rising home prices are favorable for flippers, they are also a double-edged sword, attracting more competition and reducing the availability of deals—particularly in the most fundamentally sound local markets,” says Daren Blomquist, senior vice president of ATTOM Data Solutions. “This is chasing some investors into markets and neighborhoods that may be less fundamentally sound but also offer more value-add opportunities for flippers in the form of aging housing inventory.
“While the high-level gross flipping profits are impressive, it’s important to note that they do not include all the costs incurred by flippers, including rehab, financing, property taxes and other carrying costs,” Blomquist says. “It’s also important to note that the overall averages mask the fact that not every flip ends profitably for the investor. About 8 percent of the homes flipped in the third quarter actually sold for less than what the flipper purchased them for, and about 21 percent of the flips yielded a gross flipping ROI below 10 percent—likely meaning the flipper walked away with a net loss on the deal.”
The markets with the highest-grossing flips in the third quarter, according to the report, were Cleveland, Ohio (155.3 percent return on investment); Pittsburgh, Pa. (146.9 percent); Reading, Pa. (116.0 percent); Philadelphia, Pa. (114.8 percent); and Clarksville, Tenn. (107.4 percent).
Common to these markets is the favorable relationship between buy and sell price—house-flippers bought at an average 25.2 percent discount (“below full ‘after repair’ market value”) and sold at an average 6.7 percent premium, but Pittsburgh, Pa. (53.3 percent); Reading, Pa. (51.6 percent); Cleveland, Ohio (51.3 percent); Clarksville, Tenn. (46.6 percent); and Philadelphia, Pa. (46.3 percent) all saw discounts higher than the average.
Source: ATTOM Data Solutions
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