Home Flipping is Getting More Competitive – & Less Profitable
Fast-growing prices in the housing market, as well as low interest rates, are enticing more investors to buy homes, renovate them quickly and sell them for a profit. But while home flips are rising and investors are expecting growing returns, the profits are falling.
Close to 95,000 homes were flipped in the third quarter of this year, which was an increase for the second quarter in a row after flipping dropped dramatically in the first year of the pandemic. Flips represented 5.7% of all sales, according to ATTOM, a property database.
That’s why he’s now selling to investors instead of owner-occupants. Investors will rent the properties out, and rental properties don’t need the high end finishings. That saves DiGiacomo on costs and boosts his profits.
“It was easier for us to shift gears and produce a rental grade product with materials we could get locally instead of putting a little bit more luxury type product on the market,” he added.
Even doing that, he flipped about half as many properties this year than last year, due to the higher costs, difficulty in finding flappable properties and supply chain issues.
As for next year, if interest rates begin to rise, as they are expected to do, flippers may pull out again. There is also considerably less inventory available to flip, and that does not seem to be easing.
The number of active listings in November, seasonally adjusted, hit an all-time low, dropping 18% from the same month last year, according to Redfin. If inventory remains that constrained in the pre-spring market, flipping will be even more difficult and less profitable than it is now.