The fix and flip industry can be a very financially rewarding pursuit, either as a full-time profession or a side-hustle. The data supports this optimistic outlook. During the first two quarters of 2020, the median fix and flip project on a national basis generated a $62,300 return on investment—or the difference between the average sales price and what investors paid up-front for the home—per data provided by ATTOM Data Solutions’ Home Flipping Report. That’s an increase from the $60,675 average in 2019. As long as savvy real estate investors managed their renovations expenditures, carrying costs and closing fees under their gross profit total, they made a handsome profit on their project.
It’s undeniable that COVID-19 had quite an impact on the fix and flip industry. Fix and flips declined from 6.7% in Q2 to 5.1% in Q3 during 20020, which is typical as the cold-weather season approaches. However, 2020’s rate also fell short of Q3 2019, where flips accounted for 5.5% of sales. While investors are not selling as much as usual, they’re definitely compensating for it with significantly elevated profit margins. Thus far in 2021, we’ve experienced one of the most fast-paced real estate markets in recent history. Sales have moved quickly, and potential homebuyers are migrating in droves from big cities in search of larger homes and better standards of living now that most can work remotely. These factors have led to low inventory levels in the majority of large markets, forcing higher prices, competitive offers, and fewer days on market—all positive factors from a fix and flip investor’s perspective.
The numbers are encouraging. Although the home flip rate collectively decreased across the country, investors still have good reason to be encouraged: The median profit from a flip was marked at $73,766 in Q3, a rise from $69,000 in Q2 and a massive gain year-over-year. Overall, investors are enjoying huge returns on investment (ROI)—44.4% to be exact, 4% more than last year. The improvement in typical ROI marked the second consecutive year-over-year increase following nine consecutive quarters of declines.
Here’s a closer look at a collection of varying data sets on house-flipping revenue generation that highlights some of the geographical locations that offer aspiring fix and flippers with some of the most sought-after opportunities in the current market.
In Q3, the median sale price of homes that were considered flips were pegged at $240,000, following a median purchase price of $166,234. This accounted for the highest ROI on flipped homes since Q1 2018, when the ROI rate was roughly 48%. The markets with the largest overall increases included Brownsville, Texas (return on investment 182.9%); Austin, Texas (176.4%); and Waco, Texas (157.4%). One reason home flipping gross profits are on the rise in these areas is that homes are relatively inexpensive while values are rising fast due to population growth. For example, according to Zillow, the median home price in Dallas, TX, was $233,148 in early 2020, while property values surged 7.5% in 2019. Meanwhile, the Dallas metro area’s population has been growing at a brisk pace — it added about 130,000 new residents in the past year — thanks to a strong job market, which is also helping drive home prices higher.
As always, investing strategies differ from investor to investor, but at its core, the idea is to buy low and sell high. As of right now, most markets will allow investors to sell high as buyers frantically search for new homes. Even better, most higher-priced sales are not concentrated in the largest and wealthiest markets but are more evenly distributed due to a remote economy.
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