For professional home flippers, there has never been a worse time to be in the business. Flippers, who buy homes with a plan of quickly updating and reselling them, are finding that the high demand for houses and the lack of housing inventory are impacting them as much, even more, as traditional buyers. As a result, flippers are still flipping as many houses as they normally do, but they're making about half as much money on all those sales.
Flippers are Still Flipping
In the first quarter of 2022, almost one in 10 houses sold in the U.S. had been flipped, almost a third more than in the fourth quarter of 2021. But the return on investment for flippers during the same period dropped from 39 percent last year to just 25 percent this year, the lowest profit margin the flipping industry has seen since 2009.
The reason? Like everything else, it's the economy. House flippers are having difficulty finding homes to flip because, with rising interest rates, prospective sellers are choosing to stay put rather than get saddled with a new mortgage at a higher interest for a new home. The lack of inventory means that everyone—traditional buyers, investors, and flippers alike—must pay more for properties than they had to pay last year.
And then, when flippers buy a home, the higher cost of materials like lumber and the delays in getting appliances are making their jobs more expensive and time-consuming. All of this adds up to what flippers are experiencing now: the same job for lower pay.
Flipping is a high-stakes venture. Flippers take on the purchase price and the costs of all the renovations, including labor, with an expectation that they'll recoup all of their investment and earn a nice living. At some point, however, some might decide that it's no longer worth it. Will this mean that some flippers leave the industry? It's too soon to say. If the industry signals a return to pre-pandemic norms, some flippers may be tempted to ride out the storm. But others may decide that the risk and effort involved are no longer worth the reward.
Knowing what you're getting into is critical during the home buying process, whether you're a flipper, an investor, or a traditional buyer. You need an experienced real estate attorney by your side to help you navigate the process. Attorney Melvin Monachan can help demystify the process and make sure your interests are protected. Contact our office online or call us today at (347) 389-1682.