Profit margins plummet on fixers as sales return higher

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It’s not the most lucrative time to flip houses, but that’s not stopping investors from getting back into the game.

Profit margins on home flips in the second quarter of the year hit their lowest point since 2011, a time when the market had yet to fully recover from the Great Recession, according to a new report from Atom Data. Solutions.

Home pinball machines have seen the typical ROI drop to less than 34% of the original purchase price. That’s nearly 4 percentage points lower than profit margins in the first three months of the year, and 7 percentage points lower than the same period a year earlier.

Todd Teta, chief product officer of Attom, points out that these falling margins do not necessarily mean that the turnaround has become a bad deal for investors.

“A 33% profit on a short-term investment remained pretty decent even after renovation and holding expenses,” Teta said in the report. “But with a few extra periods like the second quarter of this year, investors may need to reframe their view of these transactions.”

Falling profit margins seemed to have a fairly simple cause. While home prices rose rapidly when these investors sold in the second quarter, they rose at an even faster rate when they bought the same homes.

Data from Atom shows that the median price of flipped homes in the second quarter was up nearly 11% from the prior period and up nearly 19% year-over-year. But by the time investors bought the same properties, prices had just risen almost 14% from the previous quarter and 25% year-over-year.

About 4.9% of all home sales were returned in the second quarter, compared to 3.5% in the previous quarter, the data firm found.

But even with these gains, reversals still represented a relatively small share of the market. In the second quarter of 2020, 6.8% of all home sales were flips.

Half of the homes returned in the second quarter sold for more than $267,000. Of this median sale price, $67,000 represented a profit for the seller.

Flips were a particularly large share of the domestic market in Savannah, Georgia; Fort Wayne, Indiana; and Canton, Ohio. In each of these metropolitan areas, flips accounted for at least 9% of all home sales.

New York and California contained the several metropolitan areas with the fewest flips as a percentage of all sales. In the California metros of San Jose and Bakersfield, about 2% of homes were flips. Similarly, low rates were recorded in New York’s Albany and Rochester metros.

Despite the relatively low number of rollovers in San Jose, the region led the nation in turnaround profits. The typical gross profit on a flip in the San Jose area was $242,500 — the highest dollar value in the country, according to Attom data.

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