Home flipping investors see dwindling profits

Vectors trended downward for home flippers in 2023, with both return on investment and activity cooling off at a pace not seen in at least 15 years, a new report says.

Gross profits for fix-and-flip transactions came in at $66,000 last year and represented an ROI of 27.5% when compared to the original purchase price, according to property data and analytics provider Attom. 

The 2023 number fell 5.8% from $70,100 in 2023, while profit margins narrowed from 28.1% and 35.7% in the preceding two years to their smallest since 2007. Margins exclude any carrying costs from renovations or taxes and interest, all of which could make up 20% to 33% of resale price and eliminate returns in some cases, Attom said.

"In 2023, the landscape for home flipping across the U.S. became increasingly challenging," said Attom CEO Rob Barber, in a press release.

ROI fell for the sixth time in seven years, with median prices of homes investors put back on the market dropping 4.4% annually from $320,000 to $306,000 in 2023. By comparison, the median value of their investment purchases dipped only 4% from $249,900 to $240,000. 

Along with weaker profits, overall activity also experienced its steepest annual plunge since 2008 at 29.3%. A total of 308,922 single-family homes and condo units were flipped last year, down from 436,807 in 2022. As a share of total home sales, fix-and-flip properties also contracted on a year-over-year basis to 8.1% from 8.6%.

"The sharp decline in the number of home flips likely reflected a combination of a tight supply of homes for sale as well as dwindling returns. Either way, it will take some significant reworking of the financials for home flipping fortunes to turn back around," Barber added.

Among the largest markets with populations greater than one million, investors saw the weakest ROIs in Texas. In Austin, fix-and-flip businesses actually took a loss of $18,640 on the median transaction. Just above Austin at the bottom were San Antonio, where investors gained only $12,289, followed by Dallas and Houston at $14,817 and $16,932. Phoenix landed one notch above the four Lone Star State cities with a median gross profit of $25,000.

On the other end of the scale, California investors saw the greatest returns of a resold home. San Jose topped the list at a median $275,250, followed by its neighbor, San Francisco with $170,000. Boston, New York and San Diego rounded out the top five at $158,000, $154,750 and $153,000.

Despite elevated rates in 2023, loan financing for investor purchase transactions grew to 36.5% of total volume. The share increased from 35.7% and 36.2% the prior two years. 

Investors paid in cash 63.5% of the time last year, slightly lower than 64.3% and 63.8% in the two previous years. 

Of the total volume of properties eventually flipped in 2023, 10.8% were financed with Federal Housing Administration-backed mortgages, often used by buyers to purchase a first home. The share climbed up from 8.3% in 2022.