After binge-watching a few hours of HGTV, home flipping may seem like a good way to make some extra cash. But the shows don’t always dwell on the financial risks facing investors who jump into the game.
Home flippers flooded the real estate market last year, according to a recent report from ATTOM, a real estate data firm. But their profits fell, as the housing market corrected to the lowest levels since the Great Recession.
To come up with its findings, ATTOM looked at metropolitan areas with at least 200,000 residents and 100 home flips last year.
Flips comprised roughly 8.4% of all home sales in 2022, the highest percentage since 2005, according to ATTOM. More than 407,000 single-family homes and condos were flipped last year—up 14% from 2021 and 58% from 2020. Nearly two-thirds of flips were purchased in all-cash deals.
But returns on investment fell last year, as home prices stopped soaring to the heavens when the housing market adjusted to higher mortgage interest rates. Lower or no price growth resulted in flippers earning the smallest profit margins since 2008. The typical flip generated a gross profit of $67,900, down about 3% from the previous year. The gross profit did not include the cost of the improvements made to the home.
“Home flippers throughout the U.S. experienced another tough period as returns took yet another hit,” ATTOM CEO Rob Barber said in a statement. “More investors were flipping but found no simple path to quick profit. Indeed, returns are now at the point where they could easily be wiped out by the carrying costs during the renovation and repair process.”
Where are investors flipping the most homes?
Burlington, VA
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The South and West experienced the biggest increases in flipping.
The Burlington, VT, metropolitan area experienced the largest house-flipping boom—up 283.7% in 2022, compared to a year earlier. It was followed by Prescott, AZ, up 183.1%; Bremerton, WA, up 182.7%; Jackson, MS, up 176%; and Honolulu, up 172.6%.
Only the New Orleans and Green Bay, WI, metros saw home flipping activity fall last year.
“This year will reveal more about whether investors decide to find different ways to profit from home flipping or take a step back and wait for conditions to get better,” Barber said in a statement.
Where are home flippers making the smallest—and largest—profits?
Some parts of the country that were kinder to home flippers than others.
Three out of five of the metros where flippers earned the lowest profits were in Texas. However, investors made the least in the Kansas City, MO, metro area, raking in just $26,963, which didn’t include any work done to the house. It was followed by San Antonio, at $29,000; Houston, at $29,901; Indianapolis, at $34,532; and Dallas, at $36,970. (ATTOM only included metros with at least 1 million residents.)
The most profitable places to flip were also some of the most expensive real estate markets in the nation. Silicon Valley’s San Jose, CA, led the pack with a $242,625 profit. It was followed by San Francisco, at $163,000; Washington, DC, at $146,728; New York City, at $141,332; and Seattle, at $137,664.
Before jumping into the market, “investors should check the path of home values in the area where they want to flip homes and talk to local realtors and other experts about where they see prices going this year,” says Barber.
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