In the art of house-flipping, profit is key. And a successful flip in the District can garner a profit of more than $260,000, the highest in the nation, according to data released Thursday.
That’s nearly five times the national average of about $55,000.
The District also eclipses its neighbors in Maryland and Virginia, where investors average a profit of $75,000 and $9,600, respectively.
The practice of buying cheap (often foreclosed) homes, fixing them up and selling them for a profit was wildly popular during the housing boom, and it continued after the bubble burst. But the housing market’s recovery is forcing flippers to change strategies and set their sights higher.
Nationally, the share of homes being flipped that were sold for $750,000 or more has soared in the past year, even as the total number of homes being flipped has fallen 13 percent, according to a report by RealtyTrac, a real estate listing firm.
In the third quarter, the number of homes flipped in the $1 million to $2 million price range rose 42 percent compared with a year ago. For homes priced between $2 million and $5 million, the increase was 350 percent for the same period. (RealtyTrac defines a property that is bought and sold within six months as a flip.)
Rising home prices and fewer foreclosures have made flipping less profitable, said Daren Blomquist, vice president at RealtyTrac. Investors are facing some of the same problems as regular home buyers: a shortage of homes for sale and competition from Wall Street investors who buy homes en masse to convert them into rental units.
“The lower- to middle-range homes are preferable to flippers because they require less [renovation] work,” Blomquist said. “But there’s fewer of those properties available.”
Rising mortgage rates have started to price some buyers out of the market and have made it more difficult for real estate investors to guarantee a quick sale — or a sizable profit.
“Flippers are getting fewer offers, and they tie it to the interest rates,” Blomquist said. The 30-year fixed rate reached 4.28 percent last week, according to mortgage financing company Freddie Mac.
House-flipping remains particularly popular in Maryland, where there is still a large inventory of cheap foreclosed homes, Blomquist said. Flips rose 12 percent during the third quarter compared with a year ago. Maryland’s Baltimore-Towson region was among the top 10 most popular markets for investors, according to the report. Nearly 300 flipped homes were quickly bought and sold during the third quarter, an increase of 6 percent from a year ago.
Investment activity rose 8 percent in the District during the same period, but it declined 3 percent in Virginia, according to the report.
Virginia’s rapidly rising home prices make it attractive to flippers, but there aren’t enough homes for sale, Blomquist said. The District has fewer flips overall, but if an investor manages to acquire and renovate a property, there is no shortage of buyers, he said.
“The market’s really dried up,” said Justin Pierce, a real estate investor based in the Washington area. (Pierce occasionally writes a column for The Washington Post.) “A lot of us have moved to the higher-end areas.”
When it comes to high-end flips, activity is concentrated in a few corners of the country, the report said.
California, for example, remains a hot market. More than 2,100 homes were flipped in the Los Angeles metro area during the third quarter, the most of any region in the country and up 11 percent compared with a year ago. New York’s northern New Jersey-Long Island metro area is also popular, with 2,075 homes flipped in the third quarter, an increase of 14 percent from last year.
“If someone still wants to flip a property, [the higher end] is the only place they can find the opportunity,” said Rich Cosner, president of Prudential California Realty, a firm in Orange County. “There’s very few flipping opportunities for homes under $400,000 anymore.”