House Flipping Back to Peak Levels – Cause for Concern?
House flipping is one of many ways people make money in real estate. Good money can certainly be made, but generally with much more risk than doing rental properties.
Thus it’s a good idea to keep up to date with the market and the money that is being made on sales of short-term owners, which is the demographic that a flipper falls in.
House Flipping Currently as Prominent as Ever Before
The amount of housing flipping in the fourth quarter of 2018 was the highest it had ever been in the final quarter of a year since the stat started being tracked in 2004.
According to CoreLogic home flipping represented 10.6 percent of all homes sales for the last three months of 2018. Additionally the rate of home flipping has, for the most part consistently grown over the last eight years.
Is the Punch Bowl About to Run Dry?
Logic would tell us that with more and more people doing it competition is high and profit margins are pressed.
While the competition factor may well be full throttle the profit margins have managed to hold steady. Their data shows the profit percentage on flips has trended sideways over the past three years.
However, the way flippers are making money is much different from back before the housing crisis when people were speculating on hot price appreciation.
Now, buyers are making their money from buying at discounts, increasingly over the past few years in particular.
Remember the age old saying “you make money when you buy.” Well it is true!
Being Sure to “Buy Right”
Whether it’s for a flip or a buy and hold rental – the best way to create value in real estate is buying a fixer upper and adding value through renovation, thus creating a property worth more than you have into it.
This is what I do with my rental properties, somewhat similar to flipping, but instead I hold them to collect that on going cash flow year after year.
Regardless of which route you go knowing your numbers is the most important piece.
If you are not using a property calculator feel free to use mine
For those that want all the ins and outs to rental property investing give ScaredyCatGuide to Investing in Rental Properties a quick read. Find it on Amazon or our book store page
This is one of those things that has really been bugging me.
The housing market is very similar to what it was in 2008... but not quite.
Like you said, flippers are buying, fixing and selling properties, and as long as there is a market, this will make money... but, the problems come in on how long you have to hold inventory before it moves. The time value of money is a pain to compute. But the interest on building loans is easy to compute, but hard on the pocket book.
And, how close are we to baby boomers dumping houses on the market? Through death or nursing home.
The baby boomer dump will be interesting indeed.
Not seeing as much as prices to get in are higher. I am seeing lower end housing on the market for much longer which is a concern for me. I have been tempted to sell and take my equity into a rental until the market decides where its going but the opportunity cost there is high as well!
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Yeah, when you start seeing things on the lower end sit that is reason for pause. Generally that stuff flies of the shelf.
This worries me because of all the crap that happened before with the market. Flipping gets rid of those value houses and replaces them with often very poorly done expensive houses. On the plus side, it really helps out contractors, because the flippers pay certain ones to cut corners and do cheap work, and then the home owners have to pay others to fix it. I blame stupid DIY shows about house flipping. They convince people they can make a ton of money fixing up crappy houses...but they have to seriously cut corners sometimes to do that. By contrast, at least with renting you consider if you're gonna have to fix something in a year or two.
The increased competition will make them cut corners...but maybe it will also make it so a few get out of the market and try something else.
But I'm biased. I don't like how expensive houses are as it is. I don't want people slapping paint on and upping the price or doing really bad repairs. I'd rather people get a cheaper house that are actually going to move in and live there and fix it up or fix it up and rent it.
Yeah unfortunately there are too many out there "slapping lipstick on a pig"
Flipping has been big here in Newfoundland for a while when the price of oil was US$140 per barrel. Newfoundland has a fairly strong oil industry. When the price of oil dropped to $40 many flipper were left holding the bag. It's been a tough market for flipping since then.
Thanks for making these great resources @scaredycatguide. You're the best.
Ouch, yeah a boom/bust market can make for some pain. And my pleasure, Thanks!
You know I hear your voice when I read your replies ;) I don't mean that in a creepy sort of way though :D
It’s crazy how many people are doing it...I have two close friends who just became realtors and have a full time good job lol
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Cycle is heating up, lets see how long it stays that way.