If you're thinking about getting into the home flipping business or have just gotten started, you might be a little nervous that you're diving into a tank that's full of giant sharks waiting to chew up and spit out the little guys.
You might take some consolation in learning you are very much entering into a mom-and-pop business where the majority of flippers are people just like you.
The Q1 2017 U.S. Home Flipping Report released this month by ATTOM Data Solutions indicates that 69 percent of single family home or condo flips sold during the first quarter were from flippers who completed only one flip during the quarter. Furthermore, another 20 percent of flips were done by businesses that completed only two to nine fix-and-flips during the quarter. That leaves only 11 percent of the flips for top-tier investors who completed 10 or more flips that quarter, which includes the 3 percent that completed 100 or more flips in the quarter.
Flipping the Pyramid
Those figures flip the other way though when it comes to who's getting the best deal and turning their flips the most quickly.
According to ATTOM, those top-tier flippers paid an average of $153,274 for their homes and flipped them in an average of 138 days. Mom-and-pop flippers, on the other hand, paid about one-third more on average ($208,410) for their homes and spent nearly two months more getting them flipped and sold (194 days). Mid-tier flippers, as might be expected, fell right in the middle, spending an average of $187,871 for their houses and 158 days from purchase to sale.
Neither of those numbers should come as a surprise as the institutional investors have the mechanism in place to find the best deals on houses, then turn the whole process over to their construction crews to complete the work and have a real estate side in place to process the sale. Moms and pops are the ones doing much of the work themselves, both on the rehabbing side and the selling side. They also are more selective in what neighborhoods and the types of houses they work on. And still, a little over six months is a good time frame for turning over their flips.
Another nugget of information contained in the report is that institutional investors spend a higher percentage of other people's money on their flips. In other words, the top-tier investors use only 17.3 percent of their own money on their purchases.
Mom-and-pop investors, conversely, spend 36.4 percent of their own money financing their home purchases. Mid-tier flippers again fall in the middle, but closer to moms and pops, by financing 31.0 percent of their flip purchases.
This is one area where smaller investors could take a lesson from the big fish and learn to spread their money a little farther by financing a smaller share of their purchase price and taking advantage of borrowed funds. By leveraging your own investment with borrowed dollars, you could expand your flipping enterprise more quickly, thus speeding up and increasing your return on investment.
The one point ATTOM didn't explore in this expansion of its quarterly report was the profit margins for each of these investment tiers.
The quarterly report offers a broader overview of the fix-and-flip industry numbers for the quarter, which we'll look at further in a coming post. We felt smaller investors would be heartened by this segment of the report.
Whether you are a mom-and-pop operation, a mid-tier investor or a top-tier investor, Center Street Lending would be happy to discuss how private-money loans can enhance your fix-and-flip business. Contact us today to learn how our competitive rates can help you leverage your investment and grow your business.
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