According to Bloomberg and ATTOM Data, house flippers pulled out of the market in mass when the pandemic hit.
Many chose to just sit on the sidelines, or scaled back their buying criteria so far that they haven’t bought anything. So much so that the numbers show the lowest share of houses were flipped in Q1 2021 than in over 20 years. Perhaps ever. ATTOM puts this number at just 2.7% of all property sales.
Of course, others have been far overpaying for real estate over the last few years, and especially since 2020. This data should also be moderated by the fact that all real estate is local, and by mortgage fraud in which many claim to be buying personal residences for better financing, when they are really investing. In the past, when the data claimed only 8% of transactions were flips, some areas may have been seeing over 30% of sales and purchases being made by investors.
With US home prices up over 16% in the first three months of 2021, it is clear many missed out. It is sad to see that. Though it has left room for other investors to make serious profits.
Solo house flipping can be dangerous if you are too lean on reserve funds and you overpay for property in a fast changing market. Most solo and smaller front line investors also don’t enjoy the efficiencies of scale, financial strength and relationships that more experienced investors and funds have.
For those who can buy right, operate more profitably, and have multiple potential exit strategies, such as buy and hold or reselling in bulk portfolios, the risk has been much lower. This may be especially true for asset managers with access to REOs, mortgage notes, and other secondary market channels for acquisitions.
If you can check all of these boxes, then house flipping can be a good play right now. It means you can swiftly be in and out of the market, load up on cash, and be ready for whatever direction the market goes in next, without being exposed to volatility.
It is a shame to see so many missing out on this historic run in real estate. Yet, the fewer flippers in the market, the more profit for the serious players.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund