Property Flipping Down 12%

If you are a house flipper, you may be feeling the pull of a shift in the business. Then again, you may be rising above the challenges in the house flipping market.  Nation-wide, it appears, the house flipping market is getting tougher, not just in Eugene/Springfield Oregon.

According to ATTOM Data Solutions (a leading provider of property data - providing access to nationwide real estate and property data for more than 155 million U.S. properties), a total of 45,901 single family homes and condos were flipped in the 3rd quarter of 2018. Those numbers indicate that flipping was down 12% from a year ago and a 3.5 year low. According to the chart below, the downward trend started about 12 months ago.

 

Why is property flipping down 12%?

Possibly because of rising interest rates, which is putting pressure on mortgage rate to increases.
Possibly because of the decline in new home construction, which causes a tight housing supply,
and possibly because we in real estate wonder if  this trend will likely continue into the near future.

More reasons property flipping is down 12%

The article from ATTOM went on to show the “gross” profit margins were declining as well but overall very healthy.

As glamorous as it is to flip properties on television, those of us in the trenches doing it know that there are lots of struggles today that hit the bottom line. The cost of materials are up. The cost of labor is up. And most of all, good, qualified, CCB licensed contractors are hard to employ, and expensive.

The costs of goods to fix the property is the same all over America. Whether you are buying your fasteners in Oregon, or in Ohio, the cost is the same at Home Depot. Whether you are buying you lumber, siding, paint, etc. the cost is the same in Oregon as in Ohio. Yet, the two economies are completely different in these two states. What seems expensive here in Oregon, is hugely expensive in Ohio, where the properties are cheap to acquire.

With unemployment at an all time low, you can bet that it's hard to find someone that can swing a hammer, drill some decent holes, tape some dry-wall, lay some flooring, etc. Your project ends up being on the wait list for contractors. Not only because of unemployment being so low, but because the qualified individuals who do this kind of work are expiring. The blue-collar labor force has been shrinking for decades, because schools across the nation have not taught shop classes for decades. Not only did our education system not teach these very excellent skills, but they shunned learning them. It became an epidemic in our education system to point to higher ed at colleges. (Don't let me go there on my opinion on higher education at universities. As the daughter of a professor, you'd think I would jump on the band wagon, but consider this, an electrician makes more money than a doctor today.)

Speaking of electricians, trying to schedule your electrician to your flip is fun. The electrician is juggling as many projects as possible, some very large, and yours is quite small. But because of the relationship the flipper has built with the electrician he/she shows up when scheduled. It may be a week or ten days later than you thought it would be, but a great electrician is there when said. Looking at the electrician's side, he/she is competing to bring in new talent onto the team, where there is a very short supply of interested individuals to learn the skills of an electrician. He/she is also over-booked with contracts.

So, even-though,according to the data, the average flipped property sold for more than $63,000 than what it was purchased for,  the cost of the loan and the cost of the rehab eat-up much of that profit.

Some other interesting data:

· Median year built of flipped homes was 1978

· Median square footage was 1408

· Ratio of flips per entity was 1.21

· Average time to complete a flip was 179 days

In summary, the average flip brings in less money now, it takes a half-a-year to complete, and therefore is less glamorous than television indicates.

Do you want to join other real estate investors flipping houses and learn how they are doing WAY BETTER numbers than the national average? Contact me to learn how.
Grace Widdicombe