The Present and Future of Home Flipping: Guess Which Has the Better Outlook?

RealtyTrac data shows that in 2013, investors who purchased a home with the intention of flipping it within six months made an average of $10k more from the flip than the numbers shown for 2012.  If we were to look at these numbers alone, the first impression might be that home flipping for profit has a strong outlook.

However, making profits from flipping a home depends on a significant difference between purchase price and the price you can resell the home for after making repairs.  In market situations in which home prices have fallen and are steadily rising, home flipping can be a particularly profitable activity—especially if just hanging on to a property and “waiting out the storm” for any length of time makes the value automatically go up.  When the market stabilizes and home values level off, then the average profit from home flipping will likely decrease.  The only question that remains is: “Will that happen soon?”

Some experts say it will, which means that flipping homes has a strong profit margin for the time being.  With an average gross profit of $62,761, in 2013, 156,826 single-family homes were flipped.  This figure represents 16% more than investors reported in 2012, and more than double the flipped homes that were reported in 2011.

However, challenges remain, such as a shortage of properties available to flip in areas with data showing significant home pricing appreciation.  The process is also easy to underestimate, leaving investors paying more than they estimated they would have to pay in making suitable repairs to meet local market demand.   Investors also run the risk of overpaying for a property that has falsely inflated prices, or overestimating the demand for housing in that particular area.

New Federal Housing Administration regulations have also presented challenges for home flippers, such as a 90-day requirement between the last sale of a home and the approval of FHA financing.  FHA also requires supplemental documentation concerning property value if the new sale price is 100% greater than the previous sale price.