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Home Flips in 2021 Hit Highest Level Since 2006, But Profits Fell

David Krechevsky
Mar 31, 2022
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Gross profit margins on home flips in 2021 sank to their lowest level in more than a decade, after dropping at the fastest pace in more than 15 years.

KEY TAKEAWAYS
  • 323,465 single-family homes and condos in the US were flipped in 2021, up from 257,091 in 2020 to a total not seen since nearly 334,000 homes were flipped by investors in 2006.
  • Homes flipped in 2021 typically generated a gross profit of $65,000 nationwide, down 3% from $67,000 in 2020 and just a 31% ROI.

The number of homes and condos purchased, renovated, and resold last year increased 26% from a year earlier to its highest level in 16 years, according to a new report on home flips.

ATTOM, a curator of land and property data nationwide, today released its 2021 U.S. Home Flipping Report, which shows that 323,465 single-family homes and condos in the United States were flipped in 2021, up from 257,091 in 2020 to a total not seen since nearly 334,000 homes were flipped by investors in 2006.

Last year’s flips represented 5.5% of all home sales in the nation during 2021, down from 5.8% in 2020 and from 6.1% in 2019, ATTOM said.

In addition, while quick-turnaround sales by investors shot up, the gross profit margins on home flips in 2021 sank to their lowest level in more than a decade, after dropping at the fastest pace in more than 15 years.

Homes flipped in 2021 typically generated a gross profit (the difference between the median sales price and the median amount originally paid by investors) of $65,000 nationwide, ATTOM said. That was down 3% from $67,000 in 2020 and translated into just a 31% return on investment (ROI) compared to the original acquisition price — the lowest margin since 2008, the report said.

The 2021 ROI (before accounting for mortgage interest, property taxes, renovation expenses, and other holding costs) was down from 41.9% in 2020 and 40% in 2019, ATTOM said. The decline also marked the steepest drop since at least 2005, resulting in margins that were commonly down by 20 percentage points from the 51% peak hit in 2016, it said.

“While gross profits were lower for fix-and-flip investors in 2021, there may have been offsets that protected net profits,” said Rick Sharga, ATTOM’s executive vice president of market intelligence. “Fewer flippers financed their purchases, so their cost of capital was lower. And it took less time to execute a flip, reducing holding costs, and suggesting that less extensive — and less expensive — repairs were needed to bring the properties to market. A lot of the mark-up on fix-and-flip properties historically has come from the value of those repairs, but so have a lot of the costs that reduce net profits.”

ATTOM said investors saw their gross profit margins dip for the fourth time in five years as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties – 21.1% versus 31.3%.

Home flips as a portion of all home sales decreased in 2021 from a year earlier in 110 of the 209 metropolitan statistical areas (MSAs) analyzed in the report (53%). Nine of the 10 biggest decreases in annual flipping rates among MSAs came in the Northeast and West, led by Honolulu (rate down 83%); Atlantic City, N.J. (down 73%); Manchester, N.H. (down 57.7%); Rochester, N.Y. (down 48%) and Cedar Rapids, Iowa (down 47.8%). Metro areas qualified for the report if they had a population of at least 200,000 and at least 100 home flips in 2021, ATTOM said.

Aside from Rochester, the biggest decreases in flipping rates in 2021 across MSAs with a population of one million or more were in Las Vegas (down 37.2%); Minneapolis, Minn. (down 36.7%); Sacramento, Calif. (down 36.3%) and Philadelphia (down 35.%).

Home flipping rates increased in 2021 from a year earlier in 99 metro areas with sufficient data to analyze (47%). The largest annual increases in 2021 came in Provo (rate up 114.3%) and Salt Lake City, Utah (up 113.4%); Austin (up 111.2%) and College Station, Texas (up 97.4%) and Ogden, Utah (up 95%).

Aside from Salt Lake City and Austin, the biggest annual flipping-rate increases in MSAs with a population of 1 million or more were in San Antonio (rate up 56.2%), Dallas (up 34.4%) and Houston (up 32.3%).

In addition, the report said the percentage of flipped homes purchased with financing nationwide decreased in 2021 to 38.7%, down from 41% in 2020 and from 39.9% in 2019. Meanwhile, 61.3% of homes flipped in 2021 were bought with all-cash, up from 59% in 2020 and from 60.1% two years earlier.

“In an environment where mortgage rates are rising as rapidly as they are today, investors buying with cash are at a distinct advantage over consumer homebuyers,” Sharga noted. “The combination of rising home prices, rising mortgage rates and rising inflation is undoubtedly creating affordability issues for many prospective buyers, so it’s possible that there will be less competition overall for the limited inventory of homes available for sale.”

Homes flipped in 2021 were sold for a median price nationwide of $275,000, with a gross flipping profit of $65,000 above the median original purchase price paid by investors of $210,000, ATTOM said. That national gross-profit figure was down from a 15-year high of $67,000 in 2020 but still up from $60,000 in 2019.

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