Flipping homes is more popular than ever according to the U.S. Home Flipping Report [1] from ATTOM Data [2] who found that 323,465 single-family homes were flipped throughout the course of 2021, a number not seen since 2006 when 334,000 flips were completed.
In fact, flipping homes increased 26% from 2020 when investors completed 257,091 flips. To put that another way, last year’s flips represent 5.5% of all home sales in the U.S.—but that number in itself is down overall from 2020 when flips accounted for 5.8% of all sales, and down further from 6.1% in 2019.
But just because flips are up, that doesn’t mean investors are walking away with record profits. In fact profits are down 3% year over year to the lowest levels seen in a decade; the average investor typically generated gross profits of $65,000 on a nationwide scale, down from $67,000 a year earlier. This is equivalent to a 31% return on investment, a number which is also down from 41.9% from 2020.
The median price a flipped home sold for was $275,000 in 2021, compared to an initial purchase price of $210,000. The average flip took 153 days to complete, the lowest number since 2012; this is down from 182 days in 2022 and 178 days in 2019.
ATTOM calls the reduction in ROI a “rare crack” in the current housing market. This is the fourth time in five years gross profit margins have dipped as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties—21.1% versus 31.3%.
“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” said Rick Sharga [3], ATTOM’s executive vice president of market intelligence. “Fewer flippers financed their purchases, so their cost of capital was lower. And it took less time to execute a flip, reducing holding costs, and suggesting that less extensive—and less expensive—repairs were needed to bring the properties to market. A lot of the mark-up on fix-and-flip properties historically has come from the value of those repairs, but so have a lot of the costs that reduce net profits.”
“In an environment where mortgage rates are rising as rapidly as they are today, investors buying with cash are at a distinct advantage over consumer homebuyers,” Sharga noted. “The combination of rising home prices, rising mortgage rates and rising inflation is undoubtedly creating affordability issues for many prospective buyers, so it’s possible that there will be less competition overall for the limited inventory of homes available for sale.”
Other high-level takeaways from the report are:
- There were 96,773 home flips in the fourth quarter of 2021 which represented a flipping rate of 6.8%.
- The share of homes flipped in the fourth quarter of 2021 that were purchased by investors with financing represented 37% of all homes flipped in the quarter, down from 39.1% in the previous quarter and from 42.6% in the fourth quarter of 2020. The share purchased with cash rose to 63%, from 60.9 percent in the third quarter of 2021 and 57.4% in the fourth quarter of 2020.
- The median gross-flipping profit on home flips in the fourth quarter of 2021 was $65,000, which represented a typical 28.3% return on investment (percentage of original purchase price). That was down from 31.1% in the previous quarter and from 43.6% in the same period of 2020.
- Home flips completed in the fourth quarter of 2021 took an average of 154 days, down from 176 days in the fourth quarter of 2020.