Despite all the economic uncertainty in our country, home flipping has apparently surged to a 14-year high.
According to the latest Home Flipping Report from ATTOM Data Solutions, flips accounted for 7.5% of all home sales in the first quarter of 2020 -- a jump from 6.3% in the first quarter of 2019 and 7.3% a year ago.
When coupled with the growing homebuying demand seen from general consumers in recent weeks (home purchase applications have risen for two months straight), it seems investors now face a more competitive landscape than they've seen in quite a while.
To make matters worse? Average flipping returns on investment (ROIs) are down. The typical investor made a 36.7% return on investment at the start of the year -- a steep drop from 39.5% in the fourth quarter and nearly 41% last year.
According to Todd Teta, ATTOM's chief product officer, flipping profits are now at their lowest point since just after the Great Recession, and the COVID-19 pandemic only complicates things further for investors.
"Enter now the Coronavirus pandemic and the prospects for home flipping are notably uncertain, at least in the short term," Teta said. "We should know a lot more in a few months about whether home prices drop and investors get hit hard, or whether they can increase their profit margins."
The hottest markets for flipping
At the market level, 87% of the country's 140 largest markets saw the home-flipping rate increase in the first quarter.
Boston saw flipping jump the most. There, home flips have jumped 80% in just the last quarter. Minneapolis saw a 69.3% increase over the same period.
Here's a full list of where competition is shaping up to the best stiffest for flippers in 2020:
- Boston, Massachusetts (+80.2%).
- Springfield, Massachusetts (+76%).
- Olympia, Washington (+73%).
- York, Pennsylvania (+71.4%).
- Minneapolis, Minnesota (+69.3%).
- Grand Rapids, Michigan (+57.7%).
- Richmond, Virginia (+51.3%).
- Rochester, New York (+49%).
Real estate is, of course, local, so the outlook isn't so grim everywhere. In San Antonio, for example, flips are down almost 13% and investors face significantly less competition. Nearby Austin saw a dip of 11.8%, and Oklahoma City's flipping rate fell 6.1%.
How to stay competitive
If you are in one of the many markets seeing a surge in flipping competition, there are several strategies that can help you stand out and stay in the black -- no matter how many buyers you might be up against. You should:
- Look beyond the multiple listing service (MLS). Avoid bidding wars by steering clear of MLS-listed properties. Instead, look to auctions, REOs, government foreclosures, and more. You can also work with real estate agents and wholesalers in your area who may have connections to not-yet-listed properties.
- Come with all cash -- or at least a preapproval. Don't put in an offer unprepared. If you can, offer all cash and waive that tedious financing contingency. Not cash-flush? Make sure you're preapproved for your loan, and include proof in your bid.
- Reach out to homeowners directly. Just because a home isn't listed doesn't mean the owner wouldn't consider selling. Reach out to homeowners in pre-foreclosure to see if they'd be willing to sell to avoid the foreclosure process. Homeowners nearing retirement or those who have been in the home awhile may also be willing to sell (especially if home values have gone up a lot in the area).
The bottom line? Home flipping is on the rise, and you'll likely face more competition -- from both investors and homebuyers alike -- the next time you're in the market. If you're thinking of buying a new property to flip in the near-term, be ready to pull out all the stops to stay competitive.