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U.S. Home Flipping Drops Below 5 Percent of All Sales in the Second Quarter of 2014 to a 2-Year Low

Metro Areas With the Most Flips Include Phoenix, Los Angeles and Miami; Investors Realized Average Gross Profit of $46,000 per Flip, a 21 Percent Return

IRVINE, CA -- (Marketwired) -- 08/22/14 -- RealtyTrac® (www.realtytrac.com), the nation's leading source for comprehensive housing data, today released its Q2 2014 U.S. Home Flipping Report, which shows that nearly 31,000 single family homes were flipped nationwide in the second quarter of 2014 -- where a home is purchased and subsequently sold again within 12 months -- representing 4.6 percent of all U.S. single family home sales, down from 5.9 in the first quarter of 2014 and down from 6.2 percent in the second quarter of 2013.

Investors averaged a gross profit of more than $46,000 per flip on homes flipped in the second quarter of 2014, a 21 percent gross return on the initial investment. The average gross return was down from 24 percent in the first quarter and down from 31 percent a year ago, which was the peak in percentage return on flips nationwide since RealtyTrac began tracking the flipping data in the first quarter of 2011.

"Home flipping is settling back into a more historically normal pattern after a flurry of flipping during the recent run-up in home prices in 2012 and 2013," said Daren Blomquist, vice president at RealtyTrac. "Flippers no longer have the luxury of 20 to 30 percent annual price gains to pad their profits. As the market softens, successful flippers will need to focus on finding properties that they can buy at a discount and efficiently add value to."

Other high-level findings in the report:

  • Flips completed in the second quarter took an average of 187 days to complete, up from an average of 164 days in the previous quarter and up from an average of 135 days for flips completed in the second quarter of 2013.

  • High-end homes represented an increasing share of homes flipped in the second quarter. Homes with a flipped sale price of $750,000 or higher represented 4.10 percent of all homes flipped during the quarter, up 21 percent from a year ago, while homes with a flipped price of $400,000 to $750,000 represented 12.66 percent of all flips, up 10 percent from a year ago. Flips on homes priced below $400,000 declined as a share of all flips from a year ago.

  • The best returns on homes flipped in the second quarter were on homes with a flipped sale price between $750,000 and $1 million, yielding a 41 percent average gross return on investment. Homes in the $50,000 to $100,000 range had the second best return at 37 percent, followed by homes above $1 million at 35 percent.

  • Metro areas with the most flips were Phoenix (1,438 flips), Los Angeles (1,371 flips) and Miami (1,290 flips). However, all three metro areas saw declines in flipping activity as a share of total home sales from the previous quarter, and Miami was the only one of the three metro areas to see its home flipping share increase from a year ago.

  • Markets with the best return on flips in the second quarter included Pittsburgh (106 percent), New Orleans (76 percent), Baltimore (73 percent), Virginia Beach, Va. (66 percent) and Daytona Beach, Fla. (63 percent).

  • Metros with the highest dollar amount of average gross profit on home flips included San Jose, Washington, D.C., San Diego, Los Angeles, and Seattle, all of which had an average gross profit of more than $100,000 per flip.

Flippers face low inventory and rising prices in Seattle, Southern California
"We are seeing a lot of interest in the speculative market by investors looking to capitalize on rising home prices in Seattle, but the challenge they're running into is inventory. We currently have about one month of inventory in Seattle, so competition for homes is fierce, and many homes are selling for well above asking price," said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. "This means investors looking to flip a home and make a healthy profit must think outside the box. Gone are the days of lipstick-on-a-pig flips -- today's flips must be total remodels from the studs out with high-end finishes, built-out basements and additional square footage. Those are the homes that are bringing the most return on investors' dollars in Seattle."

"Our market has seen a large amount of property flipping over the last three years as investors made up a large segment of our market with a lot of international money flowing in as well. The properties have seen large appreciation in average and median sales prices so the investors have had a good return on their money and risk taken," said Steve Rodgers, CEO/president & owner of Real Living Lifestyles, covering the San Diego market. "We are seeing some of the investor market slow down due to an increase in inventory and prices pushing some flippers out of the market, but real estate still remains a great investment no matter who is jumping in!"

"Opportunities for investors to flip homes is still very much alive and well in Southern California as inventory is starting to expand," said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering Orange, Riverside and San Bernardino counties in the Southern California market.

Phoenix and Los Angeles flippers espouse extensive rehab on flips
Maria Giordano, a former nurse-turned-flipper who has flipped more than 20 houses in the Phoenix market over the past two years, takes a rehab-heavy approach when flipping a house.

"I am one of those flippers who is not just replacing paint and carpet," she said, adding that her typical flip is a home that is 40 to 50 years old but that she also does extensive rehab on newer homes. "Even if it's a house that was built in the 1990s, I'm gutting the master bath, usually the hallway bath, taking out walls, really changing the floor plan ... so really you're giving someone the look of a brand new house in an older neighborhood."

Jennifer Laske, who has been flipping homes in the Compton and Inglewood areas of Los Angeles for the past two years with her husband, said she takes a similar approach.

"Putting lipstick on the problem isn't going to end us up with a beautiful house," she said of a recent flip that required ripping out walls and shoring up the foundation. "The floor plan layouts that we've changed, everything that we've done here is to maximize the dollar amount when this house sells, and also make somebody really love this house. So we're not trying to put some paint here and trick anyone, we're actually trying to make a really beautiful house."

Report methodology
RealtyTrac analyzed sales deed data and automated valuation data for this report. A single family home flip was any transaction that occurred in the second quarter where a previous sale on the same property had occurred within the last 12 months.

Special note on methodology change in second quarter of 2014: RealtyTrac adjusted its methodology for flipping to include properties bought and subsequently resold within 12 months vs. six months in previous reports. This methodology was applied retroactively to previous quarters as well for comparison.

Data Licensing and Custom Report Order
Investors, businesses and government institutions can contact RealtyTrac to license bulk foreclosure and neighborhood data or purchase customized reports. For more information contact our Data Licensing Department at 800.462.5193 or [email protected].

About RealtyTrac
RealtyTrac is a leading supplier of U.S. real estate data, with nationwide parcel-level records for more than 129 million U.S. parcels that include property characteristics, tax assessor data, sales and mortgage deed records, Automated Valuation Models (AVMs) and 20 million active and historical default, foreclosure auction and bank-owned properties. RealtyTrac's housing data and foreclosure reports are relied on by many federal government agencies, numerous state housing and banking departments, investment funds as well as millions of real estate professionals and consumers, to help evaluate housing trends and make informed decisions about real estate.

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