House flipping isn't dead, according to a recent report from RealtyTrac.
The real estate list firm, which worked in compliance with BuildZoom, a big data company that uses building permits and licensure information to help consumers find contractors, revealed its in-depth analysis of how home improvements can influence real estate property values.
"This is the first time the industry has been able to quantify how improvement expenditures impact property values," said Jiyan Wei, co-founder of BuildZoom. "The data clearly shows what a lot of shrewd investors have known for years - that if executed properly, improvement expenditures will yield a positive ROI."
But some markets were better than others for those seeking big-time return on investments.
RealtyTrac reported that home flipping profits are up 30 percent in the first quarter of 2014, though less than 4 percent of all total homes sold during that span came from such sales.
"The percentage of flips is down as we have experienced a drop in overall inventory," said Wesley Hardin, a managing broker for RE/MAX Alliance. "Flipping profits are up due to the increase in home price appreciation, and the time it takes to complete a flip has increased as well."
It took the average residential investor 101 days to complete a housing flip in the first quarter of 2014, which is up from an average of 79 days in the first quarter of 2013.The facts behind flipping
The top three markets for return on investments were Prince George's County, Maryland; York County, Pennsylvania; and Baltimore County, Maryland.
In Prince George's County, the 347 homes flipped from April 2013 to March 2014 showed an average gross return on investment of 83 percent, as homes were initially purchased for an average of around $125,000 and then sold for more than $229,000.
For metro areas with a population of at least 1 million that had more than 25 single family homes flipped in the first quarter, the highest average gross return on investments were seen in Pittsburgh (89 percent), Philadelphia (56 percent), Memphis (51 percent), Detroit (48 percent) and Seattle (48 percent).
"Slowing home price appreciation early this year in many of the most popular flipping markets put some investors in danger of flying too close to the sun," said Daren Blomquist, vice president at RealtyTrac. "But investors appear to have recalibrated their flipping strategy, accounting for the slower home price appreciation even if that means fewer flips."Not every market is flipping out
However, home flipping isn't making a comeback in every market. Sales of home flips were down over the past year in New Orleans (down 83 percent), Baltimore (81 percent), Minneapolis (80 percent), Richmond, Virginia (80 percent), Detroit (76 percent), and Washington, D.C. (73 percent).
Flipping as a share of all sales was also down 29 percent in Chicago and 22 percent in Southern California's Riverside-San Bernardino.
"Investors interested in flipping houses are having to dig deeper into a new pool of inventory as the market surges," said Chris Pollinger, senior vice presidential of sales at First Team Real Estate, which covers the Southern California market. "The affordable properties have quickly disappeared, pushing flippers into higher-priced properties with better margins and longer carry times."
So far in 2014, 21 percent of all properties flipped were purchased from a foreclosure, according to Blomquist. That number is down from 27 percent in 2012 and 32 percent in 2011.
Flipped homes accounted for 4.6 percent single-family home sales in the U.S. in 2013, a surge of 0.4 percent from the year prior. In 2011, flipped homes made up just 2.6 percent of the nation's total single-family homes sales.
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