House Flipping Back to 2006 Levels; Worried?
I get several calls or texts every week by someone offering to buy a condo we own in Scottsdale.
What is particularly interesting to me is that the offers come from dialers at large call centers that house-flipping firms have set up to make nonstop calls.
In other words, house flipping is a big business now.
According to this recent article in the WSJ, house flipping is back to “pre-crisis levels” not seen since 2006 when 11.3% of homes sold were flips.
Currently, 10.6% of homes sold are flips.
This data scared the heck out of me b/c rampant speculation is usually a sure sign of a pending bust.
BUT, the WSJ says this time is different (my favorite phrase), and this is why:
- Pro’s vs. Amateurs. In 2006, unsophisticated individuals (“cocktail waitresses”) were buying any property they could find and just waiting for them to appreciate. Today, most flippers are pros who are buying up older homes and doing significant improvements before flipping. A full 40% of flippers in Q4 were corporate sellers. In addition, the average age of a flipped home is ten years older than the average in 2006.
- Margins are higher. The average profit margin in Q4 was 23%, while the average margin was only 9% in 2006. These thicker margins give today’s flippers a much larger cushion should the housing market correct.
Initial Public Offerings
There is another reason (not mentioned in the article) that flips might remain a great bet in JVM’s two primary markets (Austin and the Bay Area): the recent and pending IPOs of “unicorns” such as Lyft, Uber, Airbnb, Slack, Palantir, Instacart and others. Both the Bay Area and Austin will soon be awash in young tech millionaires looking to buy real estate.
FLIP RULES FOR LENDING
Lenders define “a flip” as a property that has been bought and re-sold within 90 days. FHA will not finance flips. Conventional and jumbo lenders will finance flips, but they usually require two appraisals.
In addition, properties that sell outside of the 90 day window, even if not technically a “flip” from a lending perspective, will still receive substantial extra appraisal scrutiny.
Founder/Broker | JVM Lending
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