A while ago we did a blog about the investment banking groups jumping into the real estate market. They understand that the stock market can’t be a continual source of investment growth, so they look for other investments that will remain sustainable, with real estate being one of them. What investment banks have done is they bought huge chunks of single-family homes in choice markets such as the Atlanta market, in order to rent them out. Those rentals provide sustainable, recession-resistant investments for the long haul.
Another reason why the housing market continues to skyrocket is because of the shortage of homes available for sale. So with investment bankers eating up a lot of the available inventory, we also have another group that has been eroding what used to be ideal entry-level market properties throughout the United States. This group that is buying up such properties and has been for the last 15 years are home flippers. Home flippers have been buying and reselling properties after rehabbing them for years. At one point the effect appeared to be negligible, but home flippers are even starting to feel the crunch of inventory shortages hitting their own bottom line.
Still, home flippers for able to close nearly 80,000 single family homes and condos during the second quarter of 2021. This is based upon reports by ATTOM. The number of home sales that were flipped constitute only 5% of total home sales cumulatively.
The average home flipper was able to realize a gross profit of $67,000 in the second quarter for each home flipped. This represents a 33.5% return on investment, which compares with the 37% return on investment recorded in the first quarter of 2021. It was a big marginal profit for the fourth quarter of 2020, which represents a 40% return on all home flips.