It’s been a couple of decades since fix-and-flips first took the real estate market by storm. Now, some twenty years later, the business of flipping houses for profit has turned into a lucrative profession for real estate entrepreneurs nationwide, and the trend doesn’t seem to be slowing down any time soon.
The question many are asking now is, Is house flipping still as profitable as it once was? Keep reading as we take a closer look at that very question.
For starters, the term “fix-and-flip” refers to the process of purchasing, rehabbing, and then selling properties for profit. To understand just how popular this has become, let’s take a quick look back at where it all started.
During the economic recession of the 1980s, people close to the real estate industry started to figure out they could buy distressed homes, fix them up, and sell them—netting some decent cash. As such, they began purchasing foreclosed homes, renovating them, and turning them around in a short amount of time for profit. While this was more so limited to construction and real estate professionals in the early days, the trend has since become so mainstream that even people with no building or real estate experience are throwing their hats into the fix-and-flip ring.
But, when it comes to the overall premise of the process, not much has changed from the early days of fix-and-flips. The property undergoing the fix-and-flip is typically purchased at a discounted price, quickly renovated (usually within a few months), and then relisted at a higher price.
There are many fix-and-flip tips and tricks that go into getting the most bang for your buck, and you can read about some of them in our blog, “Six Practices that Experienced House Flippers Follow”.
As you can imagine, over the years the profits from fix-and-flip projects have been as up and down as the real estate market itself. We’ve dealt with another economic recession within the past decade, and even more recently with the market making the switch from a buyers’ market to a sellers’ market. Even so, the business of flipping is still extremely popular, as evidenced by the numbers from ATTOM Data Solutions. Their data states that 49,059 houses in the United States underwent a fix-and-flip scenario during the first Quarter of 2019.
As for whether the practice of flipping houses is still profitable, the latest reports show that the average gross profit of house flipping so far this year has been $60,000, according to ATTOM Data Solutions. Compared to the same data from the last quarter of 2018, this rate was down slightly (from $62,000 at that time). The report also shows that profits at this same time last year were higher as well, coming in at $68,000 on average. In fact, the numbers from the first quarter of 2019 show profits hitting an 8-year low.
The important thing to keep in mind is that while the numbers may be down, overall, the business of flipping houses still does return a profit more often than not—and a healthy one at that. Just like any other business practice, the key is to be smart with your money and make savvy decisions.
In addition to surrounding yourself with the right team, good decisions also start with finding the right property. Locating a structurally sound property in a great school system will likely yield the kind of profits you are hoping for. On the other hand, getting in too deep with a money pit of a property can quickly ruin your chances for a successful project.
For advice on finding the right property, take a look at our blog “How to Find Fix-and-Flip Deals”.
Buying low and selling high may seem like the most obvious way to turn the highest profit, but there is much more strategy that goes into fix-and-flip investing. For information on one of the most well-known rules many real estate investors follow, we recommend our 70 Percent Rule blog article. Just keep in mind that in markets where profits margins have fallen, the 70% rule will be bent a bit.
As long as you understand the basics of the fix-and-flip process, you’ll be able to remain in-tune with what kind of profits you can expect. And, even if the overall trend may be lower this year than in years past, if you develop a good eye for a great deal and are skilled at estimating ARV, the odds are still in your favor to receive a generous return.
As always, if you are looking for more information on getting started in the fix-and-flip world, Anchor Loans is armed with the expertise you will need. We’re here to answer any questions you may have and help you get started today.