Current Housing Rehab Returns Plummeting

With more house flippers coming back to the market, the real estate investing industry temperature is still remaining above average, but in some cities, ROI looks to be on a steady decline.

Report courtesy of CNBC’s News With Shepard Smith. Diana Olick reporting.

Deb Cleveland has been flipping houses in New York state for over 30 years and says she’s never seen a market like this. “You’re getting anywhere from 15 to as much as fifty thousand dollars more for these fix and flips because the market has so drastically changed.”

Demand is soaring and supply is incredibly low. So while flipper returns are higher, it’s harder to do.

“You used to be able to Get away with just cleaning a house and painting it and doing some small upgrades. Well, that’s no longer what the buyer wants. I focus on the first time home buyer and when we buy a house, we go from tip, you know, tip to toe.”

Close to 80,000, single family homes and condos were flipped in the second quarter of this year, nearly five percent of all sales. That’s lower than what we’ve seen in the past decade, but it was the first increase in flipping in more than a year. While the average gross profit on a flip rose about three percent from a year ago, the net return fell to a decade low because of higher renovation costs.

“What’s happening with material, the cost not only has gone up, but the delivery time has expanded. It used to be anywhere to be able to get a kitchen inside of three weeks. And now it’s taking me anywhere from six to eight weeks.”

The return was 33.5% compared with the original acquisition price, that’s down from around 41% in 2020.

Cleveland advises flippers today to watch material costs closely and go the extra mile to find the best opportunities in this super pricey market.

“If you start looking and know how to find properties off market that are not listed with an agent, that’s where you’re still going to find the lower prices.”

Of course, with more flippers coming back to the market, mostly using all cash, prices are likely to stay inflated. The realtors, in fact, just reported a surge in investor sales in August and a pullback in sales of first-time buyers and of It’s the first time buyers mostly need mortgages.