House flipping increased in popularity and profitability in the Tri-Cities last year. Investors in six of eight local markets had a gross return on investments (ROI) on flips that were well above the national average. Flippers in Sullivan and Greene counties has the highest gross ROI. The report is also an example of how entrepreneurs see, seize and profit from a market opportunity.
According to Attom Data Solutions’ Year-End 2017 U.S. Home Flipping Report, local property investors flipped 533 homes last year. That’s a 21.4% increase from last year’s total and a 408% increase from 2011’s 105 flips. Nationwide, last year’s flips were up 4% – the highest level since 2007.
Attom analyzed sales deed data for its report. A single-family home or condo flip was any transaction that occurred in the year where a previous sale on the same property had occurred within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20% and 33% of the property’s after repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the first sale (purchase) price.
Local flips began tracking dramatically higher in 2015. The timeframe dovetails with the year when investors were getting aggressive in the housing market that afforded a good return on flipping homes for resale. Others were active earlier to expand their rental inventory. Those were also the same years that the recovering housing market began releasing pent-up demand driving home sales – especially those in the $200,000 and below price range – to record levels. Those sales drove inventories in that price range to record low levels.
Attom’s report shows that the average gross ROI on a flip nationwide was 49.8%. Here’s how ROIs at local markets looked:
Greene Co. – 97.9%
Sullivan Co. – 88.3%
Bristol VA – 82%
Washington Co. TN – 77.9%
Hawkins Co. – 75.7%.
Carter Co. – 43.7%.
Washington Co. VA – 36.4%.
Unicoi Co. – 3.6%.
Compared to 2016’s annual average ROI every local market except Washington Co. VA and Unico Co. increased. Most of those increases were in the 20% plus range. The exceptions were Carter and Greene counties.
Attom’s report says last year’s flips had a 5.9% share of all single-family home and condo sales, up from 5.7% in 2016 and the highest level since 2013. The local market performance was stronger.
Here’s what the local flips market share of all sales looked last year:
Carter Co. – 10.5%
Greene Co. – 4.4%
Hawkins Co. – 8.7%.
Sullivan Co. – 5.4%.
Unicoi Co. – 5.6%.
“The surge in home flipping in the last three years is built on a more fundamentally sound foundation than the flipping frenzy that we witnessed a little more than a decade ago,” said Daren Blomquist, senior vice president at Attom Data Solutions. “Flippers are behaving more rationally, as evidenced by average gross flipping returns of 50% over the last three years compared to average gross flipping returns of just 31% between 2004 and 2006 — the last time we saw more than 200,000 home flips in consecutive years. And while financing for flippers has become more readily available in recent years, 65% of flippers still used cash to buy homes flipped in 2017, nearly the reverse of 2004 to 2006, when 63% of flippers were leveraging financing to buy.”
Blomquist’s financing observation can be illustrated locally when the share of all-cash sales began ranging from 30% to 50% in many local counties. Those all-cash sales first showed up shortly after the recession bottomed out and when there were ample foreclosures on the market. At that time many of the investors were buying to expand or replenish their stock of rental properties. Flipping came more prominent when inventories in the $200,000 and below price range dropped to record lows which enhanced the marketability and profitability of flips.
At the same time more, real estate professionals were becoming investors both as landlords and flippers. Brian Hullette at Conservus Real Estate Group is an example. Like many others, he entered the real estate profession when they market was on the upswing. He began flipping to augment his business of listings and selling properties early on when competition dramatically increased because more people were entering the real estate business to cash-in on the rising market. He said his first flip was almost by accident. He had a listing where the owner set his price too low. Hullette told the client the price was too low, but “he just wanted out, so I bought it.” He flipped the property and had a good return on the investment. That opened his eyes to the potential, so he began learning more about the financial side of flipped and flipped several other properties.
It’s not an uncommon story.
How long flipping will be in vogue depends on market conditions. Despite the popularity of HGTV so far much of the flips for resale have targeted the $200,000 and below. And much of that was driven by the inventory of properties that could be flipped then sold at a reasonable profit. The next step up would be the higher price ranges of housing that is not being serviced by new home construction or ones that can be competitive with existing homes on the market. But that step up will likely be more dependent on financing instead of all-cash sales. A step up is also heavily dependent on labor and materials cost. Building supplies used in refurbishing and remodeling had a good year last year and it’s expected to be better this year. That’s driven by both flips and owners upgrading their existing home or one they have recently bought.