A decade or so ago, property investments were the rage. Almost everyone was in on the hot property market that seemed to have no end to it. The average investor was more likely to ask, “How do I sell my house quickly?” Rather than wonder if the bank had been over generous with its mortgage terms.
Now, at the end of 2016, the housing market and the economy are in a very different place. The bubble has burst and there are even signs of a recovery on the horizon. There’s plenty of evidence that the heady days of the real estate bubble are long gone. But there are also signs that the real estate sector is genuinely healing itself.
One of the clearest signs is a return of the house flipping trend.
For the uninitiated, house flipping is a technique used by property developers for short-term real estate ventures. The official definition of a flip is when a house is bought and resold within a twelve month period. Usually the investors buy the house on a bargain, fix it up as efficiently as possible and resell it to the average buyer at or above market value, pocketing the profit.
A report by ATTOM Data Solutions found that house flipping was at the highest level in six years. More than 51k single-family homes were flipped just in the second quarter of 2016. The market has expanded by 14% from the previous quarter and is marginally up year-on-year as well.
The report did suggest that the current level was far from the real estate bubble heyday. House flippers were not yet in a frenzy, as per the report. But the levels were certainly growing rapidly.
One major factor for this increase is the return on investment property investors could expect in the market. Average ROI on house flips was close to 49% in 2016. Compared to 2006, when the returns were an average of 27%.
Also, the report suggest that the market is on a much better footing this time. More buyers were paying for property in cash. Before the financial crisis only one in three investors paid a substantial cash down payment for the property they were trying to buy. Now that ratio has risen to two in three.
The average profit on a house flip was highest in California. Places like San Jose and San Francisco offered flippers an average profit of $145,000. In 2015, the return on investment was highest in Hartford, Connecticut. The average house flipper could expect a return of 69% on the amount invested here. Other places like Pittsburgh: (129.5%), New Orleans: (99.2%), Philadelphia: (98.4%), Cincinnati: (89.7%), New Haven, Conn.: (89.6%) offered surprisingly great returns as well.
The slowdown in house prices in California, however, could indicate a peak in house flipping activity right now.