House Flipping Has Not Flopped

Profits are down but house flipping numbers are still strong

Sarah Wolak
Sarah Wolak
House flipping 1

– Charles Weinraub, professional house flipper

Weinraub’s anticipates, based on his past experience, his local market in 12 months will drop 15%. “There’s less profits due to compressing across the board, less money and lower prices plus high building costs are all factors,” he said. “Construction costs are down 5% but the cost of capital is up, which squeezes house profits.”

The Future Of Flip

Both professionals anticipate labor markets and shortages leveling out, parallel with housing inventory demand beginning to soften. Last year, Freddie Mac reported a historically low housing inventory, unable to keep up with household demand. However, inventory this year is beginning to slowly bounce back as the buying pool shrinks. “It is also possible that we see some distress or default volume, although this is expected to be relatively muted compared to the last significant housing downturn,” Russell said. “Ultimately, these dynamics may increase investor appetite to rehabilitate existing housing stock in certain markets while slowing transaction volume in others. Further, there may be certain markets that better support healthy fix & flip margins whereas other markets may be better served by a fix-to-rent strategy.”

Russell added, “Our view is that flipped inventory will slow down at least momentarily while the market sorts itself out. With margins at their slimmest in more than a decade and rising interest rates affecting how much buyers are willing to spend, the collateral underwrite is more important now than ever.

“Leveraging solid valuation processes and diligence that compares not only historical sales but also the current active and pending sales environment are crucial to mitigating risk during this time. That said, as professional flippers pull back, we are likely to see an uptick in starter homes and first-time buyer acquisition again. It’s all part of the cycle.”

Sarah Wolak
Sarah Wolak,
Staff Writer
This article was originally published in the NMP Magazine September 2022 issue.
Published on
Aug 31, 2022
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