Home-flippers beware, it’s brutal out there.
More than 6,000 homes were flipped during the third quarter in California, a 4.4% drop from a year ago – the latest evidence that home-flippers may be crunching numbers and learning that buying, fixing and selling a home within a year is hard work and high risk for little money.
The average California home-flipper had a hard-to-feel great about 21% return on their investment, almost 10 percentage points lower than the national average during the July-September period, according to ATTOM Data.
Now, California home-flippers may brag about some of the best paydays at $125,000, compared to the national average of $73,500. But the average flipped home cost $600,000 in California – about 2.5 times more than the national average of $242,000.
HOME-FLIPPERS ‘CONTINUE TO STRUGGLE’
Crunch the numbers and the conclusion is the buy low-sell high model doesn’t work right now. Near-record-high home prices and lower-but-still high mortgage rates are hurting home flippers just as much as home shoppers. (Check out the second-quarter report.)
Plus, data are based on the purchase price and the resale price, and does not include costs such as renovation expenses, mortgage payments, property taxes and commissions to brokers. The $125,000 profit could be cut in half.
“It’s not as if profits have shot through the roof and investors are riding a new wave of good times,” says Rob Barber, CEO of ATTOM. ”Far from it, as they continue to struggle to benefit from the broader market boom.”
Nationwide, profit margins have improved five of the past six quarters, ending a six-year run slide. But few home flippers are getting rich from Manhattan to Manhattan Beach.
In California, six of the eight metro areas failed to meet the national profit margin of 30%, including a dismal 17% and 18% in San Francisco and Los Angeles (see table below). San Diego came close at 29.6%.
BAKERSFIELD AND FRESNO ROCK, FOR HOME FLIPPERS
Looking for the best return on investment for home-flipping? The Central Valley, especially Bakersfield to Fresno.
Both cities – among the most affordable in California – generated 49% profits for home flippers. They generated more modest paydays of $101,500 in Bakersfield and $115,500 in Fresno. Nearby Visalia-Tulare-Porterville home flipper profits were at 50%.
San Jose had the largest paydays nationwide, with an average of $350,000, followed by San Diego at $211,000.
Home-flippers should closely watch home prices, interest rates and inventory, major factors for the home-flipping industry.
“With the market rising amid tight supplies of homes for sale around the country and falling interest rates, conditions appear ripe for more improvement over the rest of the year as long as prices don’t shoot up past what most buyers can afford,” Barber says.
Flipped home sales and profit margins in third-quarter 2024
| Metro | Flipped home sales | Compared to a year ago | Profit | Profit margin |
|---|---|---|---|---|
| California | 6,018 | -4.0% | $125,000 | 20.8% |
| Bakersfield | 197 | +3.9% | $101,500 | 49.0% |
| Fresno | 174 | +3.0% | $115,500 | 49.1% |
| Los Angeles | 2,058 | -5.2% | $147,625 | 18.0% |
| Riverside | 991 | -4.6% | $98,000 | 21.5% |
| Sacramento | 483 | +2.1% | $107,500 | 26.2% |
| San Diego | 550 | -4.5% | $211,000 | 29.6% |
| San Francisco | 446 | +6.4% | $150,000 | 16.7% |
| San Jose | 179 | -2.5% | $350,000 | 26.9% |
Source: ATTOM Data
