Flippers Finding Ways to Make It Work

The stability of the housing market continues to offer opportunity to house-flippers, according to an article posted by Fox Business. And accordingly, 2016-17 may continue to foster an environment conducive to house-flipping.

For the first three quarters of 2016, the number of investors who flipped a house reached the highest level since 2007. Of those purchases, approximately one-third of the deals were financed with debt.

Even banks are now venturing into providing financing vehicles for house-flippers, who buy and sell homes in a matter of months. The amount of capital designated to house-flipping is expected to grow. Banks, including Wells Fargo, Goldman Sachs and J.P. Morgan Chase, have begun extending credit lines to companies that specialize in lending to home-flippers.

The market for house-flipping loans is expected to reach about $48 billion in total sales volume this year, the highest since 2006, according to ATTOM.

The average profit is calculated to be about $61,000 on each flip. For comparative purposes, this is up from about $19,000 at the bottom of the market in 2009.

This trend appears to be, in part, fueled by rising home prices and strong buyer demand across the country. In addition, the shortage of inventory is also seen as contributing to this trend.

Loans to house-flippers are typically for shorter terms — usually around seven months — and bring with them interest rates between 7% and 12%. A house-flipper usually places up to two-thirds of the value of the property down since these type loans are designated as being higher risk. But the higher down-payments are well worth the investment, when some flippers walk-away with profits of up to $200,000 a year. Yet, the inventory shortage along with higher lending rates is starting to squeeze the flippers’ bottom-line. Early in this particular cycle of the real estate market, a house-flipper would purchase a property at a 30% discount to the market. Now such flippers are willing to risk purchasing a property that is 10% to 15% below market value.

“One of the most incredible statistics is, for 18 years middle class people haven’t had a real wage increase, and in some cases now they’re working two jobs and they’re making less money than they used to make.”

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