Increased house flipping producing bigger profits

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House flipping in the first quarter of 2016 was both widespread and profitable. A report by RealtyTrac shows the average gross profit on a house flip in the first three months of the year was $58,250 – the highest in more than a decade.

The report also shows that 6.6% of total home sales during the period were flips, the highest percentage since 2006, when flips accounted for 9% of sales.

The average $58,250 gross flipping profit in the first quarter of 2016 represented an average 47.8% return on the original purchase price, the highest average gross flipping return on investment (ROI) since the third quarter 2012.

Unlikely markets

The highest ROI was found in some pretty unlikely markets, many of them in Pennsylvania. For example, flips in East Stroudsburg, Pa., produced an averge ROI of 212%. The average ROI was 136% in Reading, Pa.; 126% in Pittsburgh; 105% in Flint, Mich.; and 105% in New Haven, Conn.

Areas where there are a lot of foreclosures often produce large profits on flips. Cities like Flint, where the water contamination crisis has badly damaged property values, have an abundance of under-valued homes.

Other cities with a hefty flipping profit include Philadelphia (103%), New Orleans (97%), Cincinnati (88%), Buffalo (85%), Cleveland (83%), Jacksonville (81%) and Baltimore (80%).

Positive contributions

While home flipping is never as easy as it sometimes appears on TV, Daren Blomquist, senior vice president at RealtyTrac, says today’s crop of home-flippers tend to use their own money instead of borrowing it from a bank. Most, he says, appear to be behaving responsibly and rationally.

And while excessive flipping can cause a housing market to overheat, Blomquist says flippers are actually helping by often renovating degraded housing and putting it back on the market, alleviating a lack of inventory caused in part by a lack of new residential home construction.

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