Returns on home flips drop to lowest level since first-quarter 2011

Home-flipping profit margins fell to their lowest point in nearly a decade as of third-quarter 2021, according to Attom Data Solutions’ newest U.S. Home Flipping Report.

From July through September, 94,766 single-family houses and condominiums across the country were flipped, a number that constituted 5.7% of all home sales — one in every 18 deals — during this time frame.

That’s up from a share of 5.1% during second-quarter 2021 and up from 5.2% in third-quarter 2020. It marked the second straight period of quarterly growth after a year of declining activity, signaling the continuation of a rebound after the COVID-19 crisis helped to accelerate a decline in home-flipping activities. Indeed, in terms of raw numbers, the number of homes flipped was the most seen in the market since second-quarter 2006.

While home-flip activities grew, however, profit margins dipped for the fourth consecutive quarter. The gross profit on the typical transaction — the difference between the median post-flip sales price of the property and the median price originally paid by the investor — was $68,847 in the third quarter, up 2.7% from Q2 2021 and a backtrack of 1.6% from Q3 2020. But with prices for flipped homes rising more slowly than when investors initially purchased the properties, this translated to a return on investment (ROI) of 32.3%, down from 33.2% in Q2 2021 and well below the 43.8% figure in Q3 2020. ROI sank to its lowest level since Q1 2011.

Moreover, the annualized plunge in ROI of 11.5 percentage points was the largest yearly drop since 2009. Profit margins fell on a quarterly basis in 92 of 195 metros (47%) with enough data for Attom to evaluate. The largest declines  were in Fargo, North Dakota (down 89.3% from Q2); Trenton, New Jersey (down 72.6%); and Oklahoma City (down 64.5%).

“Home flipping produced another round of competing trends in the third quarter of this year as more investors got in on the action but got less out of it,” said Todd Teta, Attom Data’s chief product officer. “It’s clear that declining fortunes weren’t enough to repel investors amid a typical scenario of 32% profits before expenses on deals that usually take an average of five months to complete.

“We will see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring them into the home-flipping business or start pushing them elsewhere.”


More Headlines