Wednesday, 11 May 2016 00:00

How 2016 is shaping up to be a Perfect Time for Flipping Homes

 flip houseThe past year saw a dramatic rise in home flipping trend. Although over heated, analysts feel that 2016 is going to set new records in home flipping industry with more households joining the bandwagon. As per a research by Trulia, 5% of all home sales in 2015 came from house flipping.

Geographically, flipping varies a lot as per the property market. For example, Las Vegas witnessed high growth in house flipping whereas Detroit was placed at the bottom of the pile. Also, Florida areas are making entry into the flipping arena with zealous interest. Such markets also display a high number of investment property loans.

Historically, real estate agents consider house flipping to be a peak of a housing market. This can sometimes also signal over heating in the property realm. However, past year’s rise is nowhere close to the historic highs and instead show a steady increase that can be at most considered a healthy uptrend. Nationally speaking, it is well under control barring a few regions.

So, How to Approach House Flipping in 2016

House flipping hasn’t caught up in every market in USA. The reason being that 2015’s price increase has made the initial purchase costly. This in turn lowers the margin of the home flippers. So, if you are not in the right market, making a good profit can seem farfetched. In such a scenario, rental investor loan can be a good tool for the right flipper since they can further minimize the risk.

Multiple researches suggest that market peak has not yet approached. House flipping is usually done close to the peak to ensure that houses are sold at a premium once restored. Past year did not witnessed substantial house flipping activity to be termed as peak year. Another point in favor of 2016 is that home prices are increasing which means that people are building sweat-equity in their homes. And flipping provides the perfect backdrop for this rising market that is rewarding sweat equity ratio.

Flipping is Risky – But in 2016, it will Still be Worth it.

As per Trulia report, flipping is still not high enough to match the 8.6% peak in 2006’s first quarter. It is hovering around 5% on a year-on-year basis. Rising home prices in 2016 show that the impetus required for flipping will be there. Another indicator can be an increase in the portfolio loan financing which means more credit in the market.

The fact that you can buy a home, repair/renovate it and sell it at a higher price provides a safety net to the flippers. In a volatile market, prices can fluctuate wildly. This can wipe out the flipper’s profits. Prediction of steady rise in housing prices creates ample opportunities to get in and out of a deal fast. So, those markets at the peak such as Florida, Baltimore, Richmond, and Miami should be approached with caution. Miami leads the pack with a 1.7% rise in flipping activity compared to the last year. However, none of the areas are anywhere close to the peak. Which means, there is still money to be made in flipping.

Correlation between flipping and home prices

There is a direct relation between flipping activity and housing prices. Normally, hot flipping markets report a higher than average increase in home prices. Low-flip areas also report prices increases in housing but they are nowhere near to the markets where flipping activity is approaching its peak. In other words, fluctuations in housing prices are triggered by the amount of flipping going on in the respective market.

Why is this? Appreciating prices lead to a drying up of supply of cheap homes need to undertake flipping. With each percentage rise in the home prices, the margin for flipping goes on decreasing. Homes that end up in high price category then take longer to sell or in some cases do not sell at all.

In conclusion, 2016 may not signal the peak of home flipping just yet. While some places do show overheating, most areas are well below national average. If you are in the right market with some quality investment property loans, flipping may just turn out to be a lucrative adventure.

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