The coronavirus housing market brought many surprises, including this: As home prices spiked, the share of houses bought and then quickly resold by investors fell in 2020.
Flips made up just 5.9 percent of all home sales nationally in 2020, down from 6.3 percent in 2019, according to ATTOM Data Solutions. It was the first time since 2014 that flipping activity had decreased.
“Last year was a banner year for the U.S. housing market, with the apparent exception of the home-flipping business,” says Todd Teta, chief product officer at ATTOM.
However, a few markets — including Memphis, suburban Washington, D.C., and suburban Atlanta — saw intense flipping activity in 2020. And hard money lenders — the financiers who bankroll flippers — are aggressively marketing their services to real estate investors.
“We’re all out there trying to unlock the hidden value in homes around the country,” says Michael Bourque, chief executive of LendingHome, a lender that specializes in loans to investors. “Roughly two-thirds of the housing stock in this country is 30 years or older. It just creates a massive opportunity for investors to create move-in ready homes.”
Flipping activity is always a double-edged sword. In a housing market characterized by an intense shortage of inventory, flippers might elbow out some buyers. On the other hand, many of the homes bought by investors are lower-value properties in need of major renovation.
The numbers in many metro areas support the notion that flippers are buying homes that might otherwise be unmarketable. In Detroit, flippers paid a median of $50,000 for homes last year, then resold for a typical price of $98,950, according to ATTOM Data Solutions. In Dayton, Ohio, the typical pre-flip purchase price was $60,000.
5 metro areas with the most flips
ATTOM defines a flip as any sale and subsequent resale within a year between unrelated parties. Among counties with more than 500,000 residents, here are the five that had the highest levels of flipping in 2020:
- Memphis. Fully 13.8 percent homes sold in Shelby County last year were flips, according to ATTOM Data Solutions. Flippers nearly doubled their money — after paying a median of $67,000, investors resold for $126,000, a gain of 88 percent.
- Prince George’s County, Maryland. In this county of 900,000 near Washington, D.C., 11.2 percent of sales last year were flips. The typical purchase price: $199,500. Typical resale price: $331,750.
- Camden, New Jersey. In this area just across the river from Philadelphia, 10.4 percent of sales last year were flips. Typical purchase price in Camden County: $97,100. Typical resale price: $201,000.
- Baltimore. The city saw plenty of activity from bargain-hunting flippers. Flips made up 9.9 percent of sales last year. Typical purchase price: $62,500. Typical resale price: $155,000.
- DeKalb County, Georgia. In this county near Atlanta, 9.9 percent of sales last year were flips. Typical purchase price: $142,100. Typical resale price: $207,000.
While Phoenix falls just outside the top five, massive Maricopa County (population 4.3 million) had the highest number of flips of any U.S. county, at 9,237.
Overall, 9.5 percent of sales in Maricopa County were flips, even though gains were comparatively modest. The typical investor’s purchase price was $245,500, and the typical resale amount was $298,000.
Phoenix remains the epicenter of iBuying activity. Purchases by Opendoor, Offerpad, Zillow Offers and Redfin Now accounted for 2.1 percent of transactions in Phoenix during the fourth quarter of 2020, according to research by Redfin. That was the highest level in any metro area.
Lower-priced homes attract attention
Flippers flocked to lower-value housing markets because they got more bang for their buck, Teta says. Flippers in Baltimore posted a gross profit of 146 percent, while those in Camden County sold for a gross profit of 107 percent.
Those numbers don’t include the costs of construction, borrowing, property taxes or insurance. Hard-money lenders typically charge interest rates of 7 percent to 10 percent.
Nationwide, homes flipped in 2020 generated an annual gross profit of $66,300, according to ATTOM Data Solutions. That translated to a 40.5 percent return on investment compared with the original acquisition price.
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