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Flipping more profitable in the third quarter

cash house FLIPPEDThose flipping a home in the Charlotte region in the third quarter saw dramatic increases in their gross profits and return on investments when compared with the second quarter.

The average gross profit for the Charlotte-Concord-Gastonia metropolitan statistical area was $63,201 in the third quarter, up from $22,586 in the second quarter and $47,275 a year ago, according to real estate data and analytics provider RealtyTrac.

Flipping activity in the Charlotte region grew 11 percent between the second and third quarters. Year over year, however, it was down 47 percent.

The average return on investment was 36 percent, up from 13 percent in the second quarter and 29 percent a year ago. RealtyTrac defines a flip as a home that is purchased and resold within a year.

Moreover, it appears that institutional investors who have been buying up properties in order to rent them are putting some of them back on the market.

Fourteen percent of all homes flipped in the region during the third quarter were bought as rentals by institutional investors, defined as entities that buy at least 10 properties in a calendar year. That’s the highest rate since RealtyTrac began tracking this in the first quarter of 2011. Such investors accounted for 12 percent of purchases of flipped houses in the second quarter and 9.4 percent in the third quarter of 2013.

“This helps explain both the accelerating price appreciation as well as the increasing profits,” Daren Blomquist, vice president of RealtyTrac, said in an e-mail. “These institutional investors are often willing to pay a higher price than owner-occupants, and so that is allowing the flippers to sell higher.”

Gaston County has seen a large influx of institutional investors, who accounted for 18.4 percent of all home purchases in the third quarter, up from 12.1 percent the previous quarter and 17.8 percent in third quarter 2013.

In Mecklenburg County, sales to institutional investors were down to 12.5 percent of all homes sold, from 16.9 percent in the second quarter and 19.9 percent in the third quarter 2013.

Blomquist also cites homeowner debt for increased yields. Twenty-three percent of flipped properties in the third quarter were originally purchased as distressed, meaning they were in foreclosure or bank owned. That’s up from 18 percent in the previous quarter and 10 percent a year earlier. This means flippers were likely able to get better upfront discounts on these houses, boosting the backend profit.

Also, Charlotte has seen a steady appreciation in home prices in recent months, making it a more lucrative market for those quickly buying and selling properties. Median sales prices grew 15 percent in September from a year ago, the highest rate in the area since 2004. Median sales prices were up 10 percent year over year in August, up from an average of 5 percent in the second quarter.

Nationally, home flipping accounted for 4 percent of total single-family home sales in the latest quarter, down from 4.6 percent in the second quarter and 5.6 percent of total sales a year ago.

Investors still made good money, though, with an average gross profit of $75,990 per flip – a 36 percent return on the initial investment, excluding rehab costs and other expenses. In the second quarter, the average gross return was 35 percent and in the third quarter of 2013, it was 37 percent.

Nationally, homes priced between $100,000 and $400,000 accounted for 64 percent of all flips, down from 65 percent a year ago. Houses with price tags of $400,000 to $750,000 represented 12 percent of all flips, down from 13 percent a year ago. Homes costing $750,000 or more presented the best return on investment, with an average 45 percent yield.

The Miami, Los Angeles, Phoenix, New York, and Tampa, Fla., metros saw the greatest numbers of flips, but the share of flips in terms of total home sales was up only in Tampa compared with a year ago.

The best rates of returns were found in Baltimore, Pittsburgh, Detroit, Richmond, Va., and Mobile, Ala.

 

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