A nationwide survey of real estate investors bidding on properties offered for auction during the fourth quarter of 2014 revealed that flipping was the preferred investing strategy over renting, according to Auction.com's Q4 2014 Real Estate Investor Activity Report.
Though various reports have suggested in the last year that flipping opportunities are dwindling, Auction.com's latest survey affirms that flipping is still going strong: 50 percent of investors said they intended to flip the homes they purchased, compared to 47.3 percent who said they intended to rent them out (2.7 percent were undecided).
"I think two things are probably true. I think the notion that flipping had gone away was probably overstated to begin with," Auction.com EVP Rick Sharga said. "I think in certain markets, conditions have changed to the point where buying and renting is less affordable and flipping makes more sense from an investor perspective. But I really do think that the decision to flip or to rent very often will come down to the location of the property."
Sharga said in areas such as California and in Northeastern states, investors are more likely to flip. Lately, he said there has been more of a shift toward flipping over renting in Washington State and in Arizona that can be tied to two factors – home price appreciation combined with lack of inventory.
"One is the fact that the properties are more expensive now, which makes them harder to rent at a profit, because you have fewer potential renters willing to pay higher prices," Sharga said. "The other is that some of these states have a very low inventory of existing homes for sale. So flippers can come in, invest some money in fixing up properties, and sell them pretty quickly at fair market value."
According to Auction.com's Q4 data, investors who purchased properties at live auctions were more inclined to flip. About 56 percent of investors who purchased properties at live auctions said they intended to flip, compared to 41.1 percent who said they intended to rent (2.8 percent undecided). The percentage of those who intended to flip was higher than those who intended to rent in all 10 states where Auction.com conducted live events in Q4. Washington (72.1 percent) and Nevada (71 percent) had the highest percentage of flippers among investors who purchased at live auctions.
Meanwhile, investors who purchased properties through online auctions showed more of a propensity to rent over flipping, according to Auction.com. About 55.1 percent of investors who purchased online in Q4 said they intended to rent the properties out, compared to just 42.3 percent who said they intended to flip (2.5 percent were undecided). Of the four regions (West, Midwest, South, and Northeast), the Northeast was the only one with a higher percentage of flippers purchasing online (50 percent) compared to renters (46.5 percent).
Auction.com's survey also revealed that the more properties an investor purchased, the more likely they were to flip. Of the investors who purchased an average of only one property per year, 36.3 percent intended to flip while 61.1 percent intended to rent. For those who purchased between two and 49 properties per year, 54.9 percent intended to flip compared to 42.7 percent who intended to rent; and for those who purchased more than 50 properties per year, 56.3 percent said they would flip compared to 39.6 percent who said they would rent.
Sharga said he expects the strong flipping numbers to continue through the year, albeit on a more regional basis.
"It'll be interesting to see if the numbers shift a little bit as more investors, perhaps, come back into the market," he said. "One of the things you have to keep in mind is that these percentages are based to a certain extent on where we're seeing the most investment activity. If we happen to go through a period, where, say, California is especially strong, that'll tilt the numbers a little bit in the direction of flippers. On the other hand, as weather warms up, if we see more investment activity in the Midwest, for example, that could make the numbers go in a different direction. By and large, I think we're going to see a very healthy market for property flipping in 2015."