Flipping homes – where a house is bought, renovated and resold within months – is undergoing a resurgence in the D.C. metro area, according to a report released Friday by RealtyTrac, a real estate data firm.
The company looked at single-family homes that were resold within six months after their purchase from January to June of this year and found that this region showed a 108 percent increase in flipping compared to the first six months of 2012. And it ranked it among the top 15 markets for profitable home flipping based on the resale value of these homes.
The report also showed that flipping is cooling in Las Vegas, Phoenix and Southern California, places that previously had been hot spots.
Daren Blomquist, vice president of RealtyTrac, sees a wave moving across the country from west to east. The wave is the housing recovery, and it is driving trends such as flipping.
“It hit markets like Southern California and Phoenix first because those were the first to see the bounce off the bottom in home prices,” he said. “Whereas in places like D.C. . . . the market is somewhat untapped from a flippers’ perspective.”
There were 3,169 single-family homes that were flipped in the D.C. metro region the first six months of this year. The average purchase price for a home that was going to be flipped was $403,441 – fourth highest in the country, behind only San Jose, San Francisco and Ocean City, N.J.
But for those who have the money, the return can be great. The average gross profit – the difference between the purchase and sale price – was $46,205. It is worth noting that RealtyTrac did not factor in how much was spent on the rehab.
The report also broke down flipping by state. For the entire state of Virginia, flipping was up 135 percent. In Maryland, it was up 104 percent, and in D.C., it was unchanged.
Because of its small housing inventory and its cumbersome foreclosure process, the District had only 57 houses flipped in the first six months this year. But those investors who can find houses to fix up, it is well worth their effort.
The average purchase price in the District for houses to be flipped was $238,298, about 28 percent below market value. The average gross profit on those houses once they were resold was $191,103.
“My guess is what’s happening there is that the homes that the flippers are getting are very highly distressed properties in need of a lot of work,” Blomquist said. “They’re getting them at very low prices, but they’re probably having to put a lot into them, which unfortunately is not reflected here. But once they do, it’s such a hot market and such limited inventory, they are able to sell it at a premium.”
Blomquist believes the increase in Maryland can be attributed to the uptick in foreclosure activity. Unlike Virginia, which moved relatively quickly through the foreclosure process, Maryland had a more deliberate system. As a result, a backlog of distressed properties is now coming onto the market.
In June, Maryland had a 162 percent year over year increase in foreclosure activity, the fifth month in a row of triple digit percentage increases. The more foreclosed properties on the market, the more opportunities for real estate investors.
Rising mortgage rates don’t appear to have a dampening effect on flipping, since most real estate investors pay cash or finance through a hard money lender. However, the rising rates are making it more challenging for the investors to sell their properties once they have renovated them.
For those thinking now is the time to jump into real estate investing, you may be too late. Blomquist doesn’t see this trend lasting.
“We’ll see the numbers taper back off,” he said. “There’s a perfect storm for flipping right now. You’re really seeing a market that’s evolving from a distressed market to a recovering market so that’s a great window of opportunity for flippers. But once that window is gone and home prices normalize and the distressed properties have also normalized to a low level, then the volumes will go back down.”