House flipping may not be as popular as it was just a year ago, but for those willing to risk it, there are now record rewards. Four percent of home sales in the first quarter of this year were flips, according to RealtyTrac, which defines a flip as a home that is bought and sold again within a 12-month period. That comes to just 17,309 flips, which is the lowest share since the middle of 2011.
The average gross profit on a flip, however, soared to $72,450, up from $61,684 in the first quarter of 2014. That is the highest profit since this survey started in the beginning of 2011, and is attributable to tight supply in the housing market, which is pushing prices higher faster.
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"The strong returns for home flippers in the first quarter demonstrates that there is still a need in this recovering real estate market for move-in ready homes rehabbed to more modern tastes, particularly given the dearth of new homes being built," said Daren Blomquist, vice president at RealtyTrac.
Flips are now giving investors an average gross return of 35 percent, but with prices higher, investors are discovering it's increasingly difficult to find properties that will make good flips. Certain markets are offering much better odds.
"Markets with the combination of distressed inventory, affordability and demand that are yielding the best flipping returns include places such as Baltimore, several metros in central Florida, Detroit, Tucson, Pittsburgh, Memphis and Chicago," added Blomquist. The average return for flippers in Baltimore was 94 percent, the highest for any city, according to RealtyTrac.
Witness the strong flip returns as reported by RealtyTrac: Tampa, Florida (57.2 percent), Pittsburgh (55.2 percent), Memphis, Tennessee (54.8 percent), Chicago (52.9 percent), Seattle (49.0 percent), New York (47.1 percent), Washington, D.C. (44.2 percent) and Boston (44.0 percent).
Another change in the landscape is house flippers increasingly are selling their homes to other investors or to second homebuyers. This may be due to the very strong single-family rental market and large-scale institutional investors who have now established management structures and are looking for turnkey homes to rent.