Home flipping is defined as buying a piece of property that needs repair, fixing it up, and then selling it for a profit. This practice can mean big rewards for investors, but can actually be detrimental for potential buyers by increasing home prices and making housing less affordable. This is one factor that could increase the likelihood of a housing bubble.
RealtyTrac, a real estate information company, collects data on house flipping and has just released some of its figures for 2015. According to the company, home flipping was at its highest level in the past eight years last year; flips made up 5.5% of all home sales in 2015. The average gross profit from a home flipping was at a 10-year high at $55,000.
Flipping is a normal part of the real estate market and can be a helpful tool is adding value to properties and generally increasing the value of neighborhoods. The average discount of a home being flipped was 26% below the estimated market value, and those homes were sold at an average of 5% above market value, making the average value increase 31% after being flipped.
Miami, Florida saw the most home flips of 2015, with a total of 10,658 homes flipped. Jacksonville and Homosassa Springs, two more Florida states, saw the biggest year-over-year increase in the number of home flipping. Florida is a state where many distressed properties funnel through the pipeline, so it makes sense that investors are taking advantage of the depressed property values.
Metro markets that registered the highest average gross return on investment are as follows:
- Pittsburgh: 129.50%
- New Orleans: 99.2%
- Philadelphia: 98.4%