House flipping is surging.  But is it profitable?

Hi everybody, Joe Hillner with Your Home Sold Guaranteed Realty, where we guarantee you a cash offer on your home within 24 hours! 

Ok, so every week, I share market data to keep you informed with the local real estate market.  
Here is this week’s Boca Market Watch.

First, Single Family Homes:

61 new listings, pretty good, and ranging in price from $369K to $15.75M.  
18 homes back on the market, while 24 homes listed took a price decrease, and 10 sellers raised their asking price.  And  another poor week with 45 different properties under contract, and 28 going pending.  21 homes were unsuccessful in selling and were taken off the market or the listing expired outright.  And another decent week for sales with 55 homes closed in the past week,  ranging from $250K to $7 M!

Next up, Condos and Townhomes:

67 new listings, not bad, and ranging from $82 Grand to $5 Million.  
19 units came back on the market, 10 properties with a price decrease, and 9 sellers with an increase.  And a strong week with 57 different properties under contract, and 46 going pending,  And like last week, only 8 condos or townhomes were unsuccessful in selling and were taken off the market or the listing expired. 105 closed sales this week, now that's what I'm talking about, and ranging in price from $78K to $6.2M.

Here's what's making news right now.

The supercharged housing market has made house flipping more popular than it’s been in years. But that doesn’t mean it’s become a more lucrative business.

Attom Data Solutions reported yesterday that 323,465 single-family homes and condos were flipped in 2021, a 26 percent year-over-year increase and the largest number since the peak of the housing bubble in 2006. 

The data firm’s latest report also found that the typical gross profit margin on a flipped-home sale has been in sharp decline, from 42 percent in 2020 down to 31 percent in 2021.  That's a 26% year over year drop, which is huge.

This drop was the fastest decline in profits on fixer uppers since 2005, and brings those margins to their lowest point since 2008, according to Attom’s report.

These gross margins only reflect the difference between the price of the initial purchase and that of the final sale. Flippers also incur costs repairing or renovating the home that can run between 20 and 33 percent of a property’s eventual sale value.  And as you I've reported frequently, the cost of materials has risen dramatically, and supply chain disruptions have only made it worse.

I work with a lot of investors, and they are all saying that it is getting harder and harder to find a profitable deal these days.  There's an axiom in real estate investing that says, you make your money when you buy.  With so many buyers bidding prices up astronomically, flippers are getting squeezed from both ends.

In other news, top real estate leaders met for 3 days this week in Palm Springs, California, at Inman Disconnect to arrive at predictions for the future of real estate. Here's what came out of those conversations.

Half of all home purchases in 2030 are going to be made using alternative methods of financing.  One group predicted that within two years — by 2024 — any offer with a financing contingency would be considered “subprime.” Cash offers will be the default going forward.  So you need to be working with someone that has solutions that can make your offer much stronger, in order to compete on that level.

Next prediction, Companies without a social conscience won’t thrive.
One industry leader said there’s enough room for the legacy companies as well as the disruptors to operate in real estate. But they said the key difference was in who would simply survive and who would thrive. The companies that are really going to thrive, they’re going to have a social conscience.  That can be everything from diversity and inclusion, affordable housing, climate change, paying attention to where they can actually make a difference and really make an impact.  Our worthy cause is, and has been for years, the Childrens Miracle Network Hospital in West Palm Beach.  We donate a portion of our income from every sale to the Network.  So your referrals really help the kids and it's something we're very proud of.

And finally, the metaverse is a $100 billion opportunity. In these metaverses, digital “land” can be bought, sold and developed entirely within a virtual world. A metaverse is a 3D online world where users can interact, hang out and, in some cases, own their own corner of the virtual landscape.

The innovations in metaverse, in virtual real estate, which also includes crypto and NFTs,  it’s obviously going to have an impact.  You and I may not understand it, but our kids certainly do. We really need to be aware that there’s a train coming, so be ready.

The innovations in these fields are going to touch 30 to 40 percent of real estate transactions by 2030.”The numbers could be $100 billion in transactions by then! That would be an immense market, and it's brand new!  Woah!