Tag Archives: house flipping

House-Flipping Trend Stalls As Hard Money Lenders Jump 40%

The American Association of Private Lenders says the number of hard money lenders is approximately 8,300, up 40% since 2016, reported Bloomberg.

A hard money loan is an asset-based loan financing through which a borrower receives capital secured by the property. The volume of these loans to house flippers last year rose to $20 billion. That’s up 37% from 2016 and about double the figure from 2014. ATTOM Data Solutions believes hard money is a significant source of lending for house flippers.

“There’s a lot of activity. Every time I turn around there’s new entrants,” said Glen Weinberg of Fairview Commercial Lending in Evergreen, Colorado.

While Weinberg usually loans up to 60% of a property’s value, some newer lenders will go up to 90%, he said.

Blackstone Group LP and Goldman Sachs Group Inc. recently dove into the hard money lending space, drawn by interest rates of 8% to 12%.

About ten years from the real estate trough in 2009, the outlook is starting to seem worrisome for flippers and their hard money financiers.

ATTOM Data Solutions published a new report earlier this month called Q1 2019 US Home Flipping Report, which shows house-flipping volume rebounded across the country earlier this year as gross profits and return on investment fell.

In Atlanta, house flippers want to put up smaller down payments than ever before, said Michael Braswell, a broker who works with hard money lenders.

“I would say, probably more than half the deals that come across my desk are not viable deals,” Braswell said.

Nationwide, 49,000 homes flipped in 1Q19, represented 7.2% of all home sales last quarter, up from 5.9% MoM and up 6.7% YoY, the highest home flipping rate since 1Q10. While this could be interpreted as a sign of continued progress, it also may suggest that investors are unloading their homes while they still can, Attom’s Todd Teta told Bloomberg this month.

The West Coast has seen some of the most significant house flipping declines in the country.

Bloomberg said hard money lenders aren’t forecasting a downturn in the real estate market just yet, but as we have mentioned before, many have overlooked the economy cycling down into 2H19.

As Zerohedge readers would know, any disruption in hard money lending and or a downturn in the house flipping market would be a ‘canary in the coal mine’ that could suggest the overall housing market will continue to deteriorate into 2020.

Source: ZeroHedge

“Canary In The Coal Mine”: House Flipping Returns Crash To Six-Year Low

Real-estate speculation has long been a characteristic of booming housing markets, and in this current cycle of artificially suppressed rates, investors have been furiously flipping homes which peaked in the first few months of 2018. The number of companies flipping houses also hit a decade high, as HGTV programming and house flipping seminars across the country suckered in the broad base of the American people.

Now the house flipping industry has gone bust, and many investors are left holding the bag. Flipping dropped for the third consecutive quarter, due to mortgage rate increases, according to Attom Data Solutions. At the same time, the average return on investment crashed to a six-year low.

“A total of 45,901 single-family homes and condos were flipped in 3Q18, signaling a 12% drop from a year ago to a 3.5-year low from the first quarter of 2015. Houses flipped sold for an average of $63,000 more than what the home flipper purchased them for, down from the all-time high of $68,000 achieved in the first quarter and from $65,000 a year ago,” said Attom Data Solutions.

The gross flipping profit in 3Q18 was about 42.6% ROI, the lowest level seen since the first quarter of 2012. Despite the recent market plateau, some flippers are finding it unprofitable in the current market environment.

With home price appreciation stalling, many flippers have started to notice margin compression and to make matters worse, President Trump’s tariffs have made the cost of materials just that more expensive.

The amount of flipped homes purchased with financing held steady at 38.8% in the third quarter, down from 39.2% a year ago and 40.7% the previous quarter.

“Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,” Daren Blomquist, senior vice president at Attom, said in a press release.

“We’ve now seen three consecutive quarters with year-over-year decreases in home flips. The last time that happened was in 2014 following the mortgage rate jump in the second half of 2013, but it’s still far from the 11 consecutive quarters with year-over-year decreases in home flips extending from 2Q 2006 through 4Q 2008 and leading up to the last housing crash,” he said.

Total houses flipped in the third quarter represented 5% of all single-family homes and condos sold in that quarter – the lowest reading in more than two years. The flipping rate declined from 5.1% a year ago and 5.2% from the previous quarter.

It also seems the popularity of “how to flip a house” in Google Search across the US peaked in 2017 and has since stalled.

Source: ZeroHedge

The Best Housing Markets for Home Flippers

House flipping activity surged to an 11-year high this year, with more than 207,000 homes flipped, according to ATTOM Data Solutions, a real estate data firm. But the key is knowing where to be and when. “The sweet spot for successful home flipping is finding the neighborhoods just emerging as the next hot neighborhoods in a city,” says Daren Blomquist, a senior vice president at ATTOM Data Solutions. The firm says the average profit for a housing flip in 2017 was $68,100.

Realtor.com® ranked the 200 largest metros according to the share of all home sales categorized as a flip (defined as any type of home that is bought and resold within a three- to 12-month period). Researchers limited their rankings to two metros per state for geographic diversity and only included markets where the average profit was at least $30,000.

The following are the best housing markets for home flippers, according to realtor.com®:

1. Nashville, Tenn.

Ratio of flips to all home sales: 4.1%
Average flip profit: $87,200

2. Fresno, Calif.

Ratio of flips to all home sales: 3.5%
Average flip profit: $53,200

3. Palm Bay, Fla.

Ratio of flips to all home sales: 3.3%
Average flip profit: $71,500

4. North Port, Fla.

Ratio of flips to all home sales: 3.3%
Average flip profit: $85,300

5. Baton Rouge, La.

Ratio of flips to all home sales: 3.2%
Average flip profit: $70,000

6. Chattanooga, Tenn.

Ratio of flips to all home sales: 3.1%
Average flip profit: $65,800

7. Los Angeles

Ratio of flips to all home sales: 3%
Average flip profit: $169,400

8. Lubbock, Texas

Ratio of flips to all home sales: 2.7%
Average flip profit: $46,000

Source: “Flip It Good! Top 10 Home-Flipping Hotbeds Where Profits Are Through the Roof,” realtor.com® (May 23, 2018)

Crowdfunded House Flipper Raises $1 Million In 12 Hours

… and It Only Costs Him 14%

“It’s the greatest thing in the world,” exclaims Alex Sifakis – the 33 year old Florida ‘flipper’ – saying he has never raised this much money this fast (despite teh 14% cost of capital). As Bloomberg reports, house flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on various platforms – because “the amount of money you can raise isn’t limited by anything but their investor base.” As one of the ‘investors’ in this crowdfunded flipfest notes “if something goes bad, you have the asset to fall back on,” but, as Bloomberg rebukes, speed and property loans may not mix — remember 2008?

Bloomberg points out that the house flipper from Jacksonville, Florida, crowdfunded nine deals totaling more than $9 million through RealtyShares over the last two and a half years. A July deal for $1 million took him just 12 hours.

“Generally, raising money takes so much time,’’ said Sifakis, 33. “This offers so much flexibility and time savings. It’s so much better than going to family offices, banks or Wall Street firms.’’

House flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks.

That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions.

The ease of fundraising through these nontraditional lenders could be a warning sign, according to Erik Gordon, a law professor at the University of Michigan in Ann Arbor.

“Whenever you see a big difference between the terms on which you can raise money in one market versus another market, something is wrong in at least one of those markets,” Gordon said.

“It usually is the market with the least-experienced players, and they usually end up wishing they hadn’t played.”

Sifakis said he’s borrowing money at an annual rate of 14 percent over two and a half years. He keeps all the profit he makes from selling homes, he said.

So far, Bloomberg notes that there have been few defaults in real estate crowdfunding deals. When they happen, the platforms say they’ll pay investors the proceeds from property sales.

The business has other potential pitfalls.

When it comes to real estate, faster isn’t always better. Wall Street’s home-mortgage machine of the mid-2000s valued speed over accuracy, with disastrous results, though most crowdfunding sites cater to investors and not homebuyers. Also, clicking for capital can be exploited by fraudsters who may not be who they say they are, according to Sara Hanks, co-founder and CEO of CrowdCheck, which provides due-diligence services for online investors.

“We’ve seen some things where the entity that’s supposed to own the property doesn’t actually own it,’’ she said.

What could go wrong?

Jeff Bullian, a Boston-based consultant, has invested in about 30 deals on RealtyShares and in a handful of others on websites such as Patch of Land. So far, only one deal has gone bad, he said. In that instance, the platform, which Bullian declined to identify, went to bat for investors so everyone could get their money back along with a small return.

Bullian said he contributes an average of $10,000 in each deal for returns of about 10 percent to 20 percent, similar to what he was getting from a marketplace lender.

“I really like the risk profile of real estate deals compared with some other investments because they’re secured,” Bullian said. “If something goes bad, you have the asset to fall back on.”

Sifakis, the Florida flipper, said he typically gets a $3 million line of credit from an investment firm for about every $1 million he raises on RealtyShares, giving him added buying power.

“It’s the greatest thing in the world,’’ Sifakis said. “The amount of money you can raise isn’t limited by anything but their investor base. And the investor base is growing and growing.”

The Fed has fostered this idiocy by manipulating everything and memories are short in housing markets. This will not end well…speed and property loans may not mix — remember 2008?

Source: Zero Hedge

Home Flipping Gaining Popularity in U.S. Again, Up 18 Percent Annually

by Michael Gerrity

According to RealtyTrac’s Q3, 2015 U.S. Home Flipping Report, shows that 43,197 single family homes and condos were flipped — sold as part of an arms-length sale for the second time within a 12-month period — in the third quarter of 2015, 5.0 percent of all single family home and condo sales during the quarter.

The 5.0 percent share in the third quarter was down 7 percent from a 5.4 percent share in the second quarter but up 18 percent from a 4.3 percent share in the third quarter of 2014 — when the share of U.S. homes flipped hit the lowest quarterly level going back to the first quarter of 2000, the earliest RealtyTrac has data on flipped home

“After curtailing flipping activity last year due to slowing home price appreciation and shrinking inventory of flip-worthy homes, real estate investors have started to jump back on the flipping bandwagon in 2015,” said Daren Blomquist, vice president at RealtyTrac. “On the acquisition side, investors are finding creative ways to pinpoint potential flips in the off-market arena, and on the disposition side investors have a bigger pool of potential buyers thanks to a surge in FHA buyers this year, many of them first-time buyers looking for starter homes.”

The average gross flipping profit — the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping experts estimate typically run between 20 percent and 33 percent of the property’s after repair value) — was $62,122 for completed home flips in the third quarter. That was down slightly from an average gross flipping profit of $62,521 in the second quarter but up slightly from an average gross flipping profit of $61,781 in the third quarter of 2014.

The average gross return on investment (ROI) — the average gross profit as a percentage of the average original purchase price — was 33.8 percent for completed home flips in the third quarter, down from 34.4 percent in the previous quarter but up from 32.7 percent in the third quarter of 2014.

Best counties for flipping to millennials

Using data from the third quarter flipping report and U.S. Census demographic data, RealtyTrac identified 18 counties where the average gross return on a flipped home in the third quarter was at least 30 percent and where the millennial share of the population in 2013 (defined as those between the ages of 20 and 34 in 2013) was at least 25 percent and increased during the housing downturn between 2008 and 2013.

The top five counties for flipping to millennials were Philadelphia County, Pennsylvania, Saint Louis City, Missouri, Baltimore City, Maryland, Cumberland County, North Carolina — in the Fayetteville area — and Kings County, New York — Brooklyn. All five of these counties had average gross flipping profits in the third quarter of 63 percent or more.

Best markets for flipping to baby boomers

RealtyTrac identified 15 counties where the average gross return on a flipped home in the third quarter was at least 30 percent and where the baby boomer share of the population in 2013 (defined as those between the ages of 49 and 67 in 2013) was at least 25 percent and increased between 2008 and 2013.

The top five counties for flipping to boomers were all in Florida: Charlotte and Hernando counties in southwest Florida, and Volusia, Brevard and Marion counties in central Florida. The only counties outside of Florida on the top 15 list for flipping to boomers were Skagit County, Washington between Seattle and Vancouver; Sussex County, Delaware, on the Atlantic Coast between Washington, D.C. and Philadelphia; and Henderson County, North Carolina in the Asheville metro area.

State, metros and zip codes with highest share of flipped homes

States with highest share of home flipping as a percentage of all single family home and condo sales were Nevada (8.4 percent), Florida (7.9 percent), Alabama (7.5 percent), Arizona (6.9 percent), and Tennessee (6.6 percent).

Among 101 markets with at least 75 single family and condo flips completed in the third quarter, those with highest share of flipping were Memphis (10.5 percent), Fresno (9.5 percent), Mobile, Alabama (9.2 percent), Tampa (9.1 percent) and Deltona-Daytona Beach-Ormond Beach, Florida (9.0 percent).

Other major markets where the share of flipped homes were above the national average in the third quarter included Las Vegas (8.7 percent), Miami (8.6 percent), Jacksonville, Florida (7.6 percent), Baltimore (7.4 percent), Birmingham, Alabama (7.4 percent), Phoenix (7.3 percent), Orlando (7.2 percent), New Orleans (6.9 percent), Virginia Beach (6.8 percent), and Riverside-San Bernardino in Southern California (6.5 percent).

Among zip codes with at least 10 single family home and condo flips completed in the third quarter, those with the highest share of flipping were 33056 in Opa Locka, Florida in the Miami metro area (30.0 percent), 38128 in Memphis (29.5 percent), 63137 in Saint Louis (28.6 percent), 33054 in Opa Locka, Florida (27.8 percent), and 44128 in Cleveland (27.5 percent).

Other zip codes in the top 20 for highest share of flipped homes included zip codes in the Baltimore, Riverside-San Bernardino, Detroit, Tampa, Phoenix, Washington, D.C., and Los Angeles metro areas.

Markets with the highest average returns on flipped homes

States with the highest average gross flipping ROI on completed property flips in the third quarter were Pennsylvania (57.2 percent), Illinois (54.0 percent), Maryland (53.6 percent), Rhode Island (48.1 percent), and Louisiana (47.9 percent). The District of Columbia also posted a high average gross flipping ROI of 55.9 percent in the third quarter

Among 101 markets with at least 75 single family and condo flips in the third quarter, those with the highest average gross flipping ROI were Pittsburgh (78.4 percent), New Orleans (73.1 percent), York, Pennsylvania (64.5 percent), Punta Gorda, Florida (61.3 percent), and Clarksville, Tennessee (59.6 percent).

Among zip codes with at least 10 completed flips in the third quarter with home price data available, those with the highest average gross flipping ROI were 21229 in Baltimore (136.0 percent) and 33063 in Tampa (130.2 percent), along with three Chicago-area zip codes: 60652 in the city of Chicago (120.4 percent), 60402 in the city of Berwyn (120.3 percent), and 60629 in the city of Chicago (115.2 percent).