Flipped home sales decline and profits tumble in California

Buy, fix up and flip a home — and maybe eke out a small profit.

The California dream of buying a bargain-priced home, renovating the property and selling for a nifty profit has become a lot tougher in California.

And more wanna-be flippers are crunching data and determining that home-flipping could be a huge pain and generate a less-than-great profit. Plus, like many buyers, ambitious home-flippers are finding fewer homes for sale – and not as many money-making opportunities.

Flipped home sales — considered a house bought and sold within a year — declined to 5,610 properties during the first quarter in California, a 13% drop compared to the same three-month period a year ago, according to ATTOM Data.

AFTER CRUNCHING THE NUMBERS, HOME FLIPPERS IN SOME CALIFORNIA MARKETS LIKELY LOST MONEY 

The state’s home flippers reported a $79,450 profit in the first quarter, a 13.9% return on the investment compared to 16% a year ago. 

But remember the return on the investment is based only on the purchase and the sale price of the home, and doesn’t include the cost of the renovation, property taxes, insurance, mortgage interest (if any, since 58% are bought with cash) and the brokerage commission. A modest sales commission of 4% would eat away $26,000 – or more than a third of the profit. 

And half of the eight regions reviewed had profits of less than the modest statewide average. In some cases, a lot less. Like the single-digit percentage gains in San Francisco (6.5%), Sacramento (7.6%) and Los Angeles (8.7%). Most home flippers in those cities barely broke even with many likely losing money.

‘A TEMPORARY BLIP?’

Bakersfield and Fresno – the major cities in the central San Joaquin Valley – boasted the best gains at 40% and 38%, respectively. But those cities are also experiencing a profit slide.

“Home-flipping carrying costs can easily erase the (national average) 22% return on gross profits,” says ATTOM CEO Rob Barber. “And it’s possible that the recent gain is merely a temporary blip.”

The brief blip could turn into a bust for many of those dreaming to find a below-market-priced home that needs some renovations that can be turned quickly. Home flippers looking for available homes are dealing with the same challenges as every home shopper – a limited supply of homes on the market and those listed have hefty prices.

BOOM TO BUST. HOW THE WEST WAS THE WORST

Nationwide, 72,960 homes and condominiums were flipped during the first quarter, a 13% increase compared to the fourth quarter – but down 4% from a year ago, according to ATTOM Data. Flipped homes accounted for 9% of home sales during the first three months of the year, down from 9.4% a year ago, but that was still the second-highest percentage of sales since 2000.

Home flippers nationally had a gross profit of $56,000 in the first quarter, a 20% drop from the $70,000 in the same three-month period in 2022. Both figures are among the lowest since the housing market’s recovery from the Great Recession.

The West had some of the smallest profits in the U.S., including a 1.7% loss for home flippers in Idaho, once the hottest housing market. Home flippers in Arizona, Nevada and Utah – also former hot markets – eked out profits of less than 2%.

Home flippers are finding smaller profits

CityProfit (purchase vs. sale price)% profit Q1 2023% profit Q1 2022
California$79,45013.9%16.0%
Bakersfield$81,50040.0%42.8%
Fresno$90,50037.8%43.8%
Los Angeles$67,0008.7%15.1%
Riverside$63,50014.1%18.4%
Sacramento$33,2507.6%9.0%
San Diego$119,00017.3%20.1%
San Francisco$60,0006.5%26.9%
San Jose$140,00011.7%37.8%

Source: ATTOM Data