Flipping houses isn't as lucrative as it used to be: What a realtor says you need to know
- The real estate market's low inventory and high demand have reduced profits for house flippers.
- Flippers now make smaller profits, around $20,000, compared to previous six-figure gains.
- Increased competition among flippers and contractors shortens the time fixer-uppers stay on the market.
- Aspiring flippers need experience and cash to compete in the current market.
Home renovation television makes it seem like it's easy to buy a house in need of repairs, fix it up and then resell it for a huge profit.
The current state of the real estate market has remained unchanged for the past few years, but it has forced house flippers to drastically adjust their profit margins.
Rick Healey, owner of Foster-Healey Real Estate, said flippers used to be able to make a six-figure profit from one property, but current market conditions are allowing for much smaller profits. Healey said that any property in need of repairs that can't be done by the homeowner and requires the services of a specialist or contractor is considered a fixer-upper.
Why did the flipping market change?
Healey said the combination of low inventory, high demand for housing, and the continued seller's market has created a low-risk, low-profit environment for flippers.
Healey said the median number of days it takes a realtor to sell a fixer-upper is 11 days, but some can take up to 20 days. He said that compared with a few years ago, it used to be between 30 and 60 days, and now the average time for fixer-uppers to stay on the market is about the same as move-in-ready homes.
"Everything is selling quickly, and because there are so many flippers in the market right now, and inventory has been tight, it's easier for flippers to keep busy and turn over a home," he said. "A few years ago, flippers would target a $75,000 or a $100,000 gain, but now they are willing to do it for $20,000 just to keep their connections with contractors and to keep making somewhat of a profit.
"There are plenty of flippers in this area, and a lot of contractors are in the position where there is little risk because they can do the repairs themselves rather than looking for a buyer who is willing to pay for it themselves," he said. "They can keep their guys busy and make a profit because they are assured to make a profit in this current market."
"Real estate agents have connections, so they will not waste time trying to sell the fixer-upper to an average or first-time buyer when they can get cash from a flipper or contractor," Healey said.
What to know about buying a fixer-upper
Although there is less risk in the current real estate market for flippers, Healey said, people with no selling or contracting experience shouldn't try it without extensive education and preparation in order to be able to compete against experienced contractors and flippers.
"I would suggest the best way to do it, if someone wants to start flipping houses, is to buy something they could live in themselves and they understand that a lot of work is going to be involved," he said. "They should understand that they need to have cash ready to buy property because it would be extraordinarily difficult to compete with a number of experienced contractors and flippers without at least the cash ready."