By CATEY HILL at Marketwatch
Those dreaming of flipping a home for a pile of loot better proceed with caution.The time it takes a home flipper to rehab, list and sell a home now averages six months — an eight-year high, according to a report released by RealtyTrac in August.
“That is a red flag that indicates it’s getting harder for flippers to get their product sold in this market,” explains Daren Blomquist, the vice president of RealtyTrac.
Furthermore, the fact that there are fewer foreclosure deals — in addition to those longer flipping times — means that home flippers are getting squeezed both on the buy side and the sell side, he adds. Indeed, of the more than 30,000 single-family homes flipped in the second quarter of this year, just 41% were acquired while the home was in some stage of foreclosure, down from 44.7% in the same quarter last year and from roughly 70% in the first quarter of 2010, when it was at its peak. This puts the share of flips acquired in foreclosure at a 7.5-year low.
Because of these kinds of factors, “we are seeing some investors moving to higher risk markets that have less solid market fundamentals,” says Eric Eckardt, the vice president of online real estate at real estate marketplace Hubzu.
Even with these hurdles, there are still profits to be made flipping: The average gross return on investment for a flipper was up slightly from the first quarter to 35.9% in the second quarter. And those trying to unload properties that cost between $2 million and $5 million raked in an average ROI of 43%.
Plus, Blomquist says that gross flipping ROI will likely increase in the coming months.
While that sounds appealing to those considering flipping a home, it doesn’t tell the whole story, as the reason for these higher gross ROIs is likely because amateur flippers are getting out of the business. “As prices continue to climb and there is less margin left for a profit, we are seeing many flippers getting out of the business because the risks are too high,” Blomquist says. “The flippers that remain now are more experienced so they know what markets to buy in at a discount, and they’re taking the time to make renovations that consumers will pay more [for].”
This means amateur flippers must proceed with caution, experts say.
“Getting into the market now means you have to be very disciplined with your due diligence,” says Eckardt — who recommends that newbie flippers stick to a market they know well, do extensive research on home prices in the area and be sure they can minimize the rehab expenses for the property. But, he adds, “there are still opportunities.”
Source: This ‘red flag’ should scare amateur home flippers – MarketWatch
