The trend of house “flipping” – people buying a fixer-upper, making some repairs and “flipping to a new buyer quickly to make a return – is making a comeback. Years ago, the trend fell out of fashion with home buyers, but now the risky business is back.
Last year, more than 6 percent of home sales were “flips”, according to a new report from Trulia. The definition of a flip according to Trulia is when a home is sold at least twice within a year.
The percentage of flips last year was the highest number that has been seen in a decade. The number of flips has not been that high since the financial crisis of 2008.
“When you see flipping reach ten-year highs, economists like us start to worry a little bit.” Trulia’s Chief Economist Ralph McLaughlin said.
“We think it’s a little bit different this time,” McLaughlin added, “because we think more flips are actually value-added improvements that investors are making to the house, rather than speculative flips which is basically someone buying and sitting on a home waiting for the prices to rise.”
Home prices are up again. “Price increases in 2016 were the quickest in about 3 to 4 years,” McLaughlin said.
He noted that the increase in the cost of homes could give potential flippers some extra protection. “If the flip doesn’t go according to plan, they at least made a little bit up in price gains in equity in the house.” McLaughlin added.
Las Vegas has the most flipping activity – in 2015, the flipping was at 9.6 percent, it is now up to 10.5 percent of all home sales, according to Trulia. However, the real estate data website did find that most investors are making improvements to the home. “We looked at the share of flips that actually had work done to them using building permit records and that is also near an all-time high,” McLaughlin said.
Of the homes flipped, 11.6 percent had acquired work permits, Trulia noted, citing BuildZoom.
Other areas that are hot for flipping houses right now include three Florida cities, three Tennessee cities, plus Atlanta, GA. Popular areas on the west coast include Fresno, CA and Tacoma, WA.
The industry does not come without risk though, McLaughlin noted.
“Flipping is a risky business,” McLaughlin warned. “If you buy a home that needs a lot of work or you didn’t do due diligence you should have and there’s some big ticket items you didn’t anticipate maybe like a foundation that needs repair or new plumbing or new roofing, those things can take a lot of the profit margins off of that flip.”