The number of homes flipped in 2021 rose 26% year-to-year, even as the profits on each flip fell 3% – the lowest level since 2008 and a 20% drop in ROI.
IRVINE, Calif. – Last year was a strong one for flipping homes, though not so much for the profits on those homes once resold.
According to ATTOM’s 2021 U.S. Home Flipping Report, 323,465 single-family homes and condos in the United States were flipped in 2021 – up 26% year-to-year and the highest point since 2006.
As a percentage of all sales, however, home flips dropped a bit last year. They made up 5.5% of all sales compared to 5.8% in 2020 and 6.1% in 2019.
While flipping remains a popular real estate investment vehicle, however, the profitability of flipping declined. Even as quick-turnaround sales by investors shot up, 2021 gross profit margins sank to their lowest level in more than a decade, dropping at the fastest pace in more than 15 years.
Nationwide, homes flipped in 2021 typically generated a gross profit of $65,000 – the difference between the final median sales price and the amount originally paid by investors – for a drop of 3% ($67,000 in 2020). That translates into a 31% return on investment (ROI) for the lowest margin since 2008.
The 2021 ROI (not including mortgage interest, property taxes, renovation expenses and holding costs) was down from 41.9% in 2020 and 40% in 2019 for the steepest ROI decline since at least 2005 and 20 percentage points from the last decade’s 51% peak hit in 2016.
“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” says Rick Sharga, 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.”
Investors saw gross profit margins dip for the fourth time in five years 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%. The decline in home-flipping profits may represent a rare crack in the foundation of the U.S. housing market, which otherwise boomed in 2021 both because of, and in spite of, the worldwide coronavirus pandemic.
Throughout the two-year-old pandemic, a surge of buyers has flooded the market amid a confluence of key factors, including historically low mortgage rates and a desire of households largely unscathed financially to trade their densely populated virus-prone area for a single-family home and yard.
Time to flip: It took an average 153 days to complete a flip in 2021, the lowest number since 2012, and down from 182 days in 2020 and 178 days in 2019.
FHA buyers: In 2021, just 8.2% of flipped homes sold to buyers using a loan backed by the Federal Housing Administration (FHA) – the smallest percentage since 2007, and down from 13.9% in 2020 and 14% in 2019.
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