There were 94,766 single-family houses and condominiums in the United States that were flipped in the third quarter of last year, the most homes flipped in a quarter since 2006, according to real estate data provider Attom.
But profits remained below where they were a year ago.
The gross profit on a typical home flip transaction was $68,847 in the third quarter, down from $70,000 a year before, according to Attom. That’s a return on investment of 32.3%, down from 43.8% a year earlier, its lowest point since 2011.
The decline in profit margins is largely because many investors bought when home prices had shot up, then sold when prices were rising more slowly, according to the report.
Still, a 32% profit before expenses is not turning off investors. Here’s how they’re making it work.
Know the market
Danielle Green has been flipping homes in Baltimore since 2018. She buys homes from the city at auction and has seen a big difference in the availability of properties and their cost.
“I used to be able to buy a home for $5,000 or $10,000 at auction prior to the pandemic,” said Green. “Now they are going for $20,000 or $40,000.”
Fewer properties were available as the auction process slowed down during the pandemic, Green said. Also, auctions that were once held in person moved online, which enabled more buyers to bid. And, Green said, there is a knock-on effect as investors in nearby cities look for cheaper homes to flip.
“Some investors have been priced out of their areas, so they come to Baltimore from Washington, DC, or Philadelphia and they drive up our prices,” Green said.
With so few single-family row homes available, Green has begun buying small multi-family homes with three or four units. While she sells some of her properties, she keeps others to rent out in order to keep some money coming in.
“Before the pandemic, I was doing three or four deals a year,” she said. “Now I’m down to one or two big deals a year. It is doable. You have to know your profit margin and work to keep it.”
She has not been immune to labor shortages and supply cost increases, but Green said she feels she has an advantage over investors from other areas because she’s lived in Baltimore and knows which neighborhoods will carry what prices.
“Investors come in and think it is easy to buy because the houses seem cheap — they’ll think buying a shell [of a house] for $40,000 is a deal,” she said. “But I know that’s not the best neighborhood. You have to know the market and understand what you’re buying.”