Real estate investors see chill in profits from home flips

Profits backslid during the third quarter for the home flipping community, putting a halt to momentum following several quarters of growth, according to a report from real estate data provider Attom.

Home flipping investors saw a 28.7% return on investment as determined by the difference between their median purchase and resale prices. The percentage came out to $70,250 in gross profit. ROI reversed course from 31.2% over the second quarter, while also coming in under the 29.8% mark of a year ago. 

The largest quarterly return this decade occurred four years ago when it hit 48.8%.

The latest third-quarter number represents the first decline after six quarters of rising ROI. Gross profits do not include any cost connected to renovations, mortgage payments or property taxes, and the number was in a range that could easily be erased by those additional costs, Attom said. The margin shrank on both a quarterly and annual basis in over half of all U.S. markets. 

“Home flippers just can’t seem to shake the doldrums. After more than a year when things were getting better, they turned notably worse again over the summer,” said Attom CEO Rob Barber in a press release.

Interest rates and sticky inflation played a part in the decline, the company noted. Even as demand from consumers remains robust and has sustained home price growth at all levels of the housing market, rising mortgage rates during the quarter put a cap on affordability for many hopeful buyers. 

Attom’s third-quarter findings come as recent research from other sources also found investors pulling back on purchases over the same period, with many citing lower profits as a primary reason. 

Although the latest data was unwelcome, “one quarter’s worth of numbers isn’t enough to make any grand statements about another downturn,” Barber cautioned. 

“The next six months should speak more to that, especially amid an ongoing tight housing market that should work in their favor,” he added. 

Among large markets with populations of 1 million or more, Pittsburgh landed in the No. 1 position in ROI, with a rate of 101.8%. On the other end, Austin, Texas lagged with just 4.5% in gross profit based on the median sales prices. 

Across the country, one out of every 14 single-family units sold in the U.S. in the third quarter were flipped properties, representing a 7.2% share or 74,618 homes, according to Attom’s report. The rate fell from 7.6% three months earlier, largely reflective of traditional seasonal patterns. The share was also 7.2% in the third quarter of 2023. 

Home flipping was most prevalent in the Southern U.S., as four Georgia metropolitan areas topped the list in the share of investor homes sold in their local market. Warner Robins led the country at 22.7%, followed by Macon, Atlanta and Columbus with sales percentages of 16.8%, 13.6% and 12.8%, respectively.

Among flipped properties resold between July and September, homes first bought by investors in all-cash transactions made up 64.1% of the market, up a full percentage point from the second quarter. The all-cash share was 61.6% in the third quarter last year. 

The share of flipped homes financed Federal Housing Administration-backed loans came out to 10.4%, down from 11% in the second quarter. The latest number increased from 10% a year ago.