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Fix and Flip Lending: A Look at 2019 Projections

It might seem that fix and flip lending won't be as profitable as in the past now that the market is more saturated and other conditions are less favorable. This isn't necessarily the case. Since any type of real estate is a numbers game, fix and flip investors can still create a successful business under the right conditions.

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Fix and Flip Lending by the Numbers

ATTOM Data Solutions is the leading curator of fix and flip data. According to its most recent figures, home flipping (single family homes and condos) reached a 3.5 year low in Q3 2018, where it was down 12 percent from the prior year. This marks three consecutive quarters of year-over-year decreases in housing flips.

Even though the numbers are dropping, that doesn't mean that there aren't profits available. They are just slightly lower than past figures. Homes flipped in Q3 sold for $63,000 on average more than the purchase price. This was down from the average profit of $65,000 the prior year. Percentage-wise, this represents an average 42.6 percent gross profit in Q3, compared to 48.1 percent in Q3 2017.

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Where Investors Choose to Flip Homes Matters

The figures provided by ATTOM are nationwide averages, but there is also data that reveals where the true profits lie in fix and flip lending. Not only certain classes of homes but also the location of the market will become a factor in whether the returns are above or below those averages.

Nearly one-third (31.6 percent) of homes that are flipped are in the $100k-$200k price range, which is one of the more profitable spaces with a 55 percent gross ROI. The most profitable is the over $5 million price range, with a 187 percent gross ROI, but this only accounts for 0.1 percent of all flips.

Several metropolitan statistical areas have a gross flipping ROI much higher than the national average. These include:

  • Pittsburgh, PA (136.7 percent)
  • Cleveland, OH (120.2 percent)
  • Atlantic City, NJ (110.3 percent)
  • Scranton, PA (109.0 percent)
  • Philadelphia, PA (107.9 percent)

Homes purchased for a fix and flip with financing vary depending on location as well. In Q3 2018, 38.8 percent of all flipped homes were financed. The states with the largest percentage of financed flips include the District of Columbia (67.2 percent), Colorado (55.7 percent), and Minnesota (52.1 percent).

Success Insights for Fix and Flip Lending

Experts still advise that house flipping can be profitable with the right formula. PwC's Emerging Trends in Real Estate 2019 Report has some valuable insight. It advises fix and flippers to be prepared to execute plans by 2020. It also cautions investors to avoid markets with rapidly-increasing property prices. Instead, emerging markets are the best environments for real estate flipping, with a focus on suburbs instead of low-income neighborhoods, which can be risky.

As proof that the fix and flip market isn't dying, Goldman Sachs, Zillow, and Redfin have all entered the market in the past year. While the gross ROI from the fix and flip business is on a downward trend, it is still at some of its highest levels in the past two decades. This remains a profitable business for real estate investors and companies that want to enjoy returns from fix and flip lending.