Last June, Dana Rice, a real estate agent and house flipper, was deep in the throes of a massive remodeling project.
She
had bought a 1938 home in an upscale neighborhood of Bethesda,
Maryland, for $600,000 and intended to flip it for a hefty profit. Four
months and $400,000 in construction costs later, Rice put the home on
the market last weekend for $1,469,000. A million dollars of her money
is at stake.
"Getting
into the project is a risk because of the amount of money that you're
putting in, but overall at the end of the day, the ratio is the same,"
Rice said as she put out candles and fliers for the first open house.
Rice
added significant square footage, along with high-end finishes
throughout. The so-called industrial cottage-style home is now 2,650
square feet with five bedrooms and three bathrooms. There is a small
back patio, but the yard was sacrificed to make the home larger.
Rice
says it is the opposite of the McMansion trend — not a tiny home for
sure, but a 'not-so-big' home with top-of-the-line appliances, lighting,
flooring, fixtures and systems.
"There
is always a market for high-end because you're differentiating your
product from, let's say, the masses," said Rice. "In this particular
area, for this particular house, I'm very confident because I feel as
though the product we delivered — we really sweated the details on it,
and I'm already getting great response from people who are looking at
fixtures, textures colors, and it's not what they see in the general
renovation flip."
Not
only is house flipping on the rise in today's increasingly competitive
market, but average gross profits are now the highest since 2000, or
since ATTOM Data Solutions, a real estate sales and analytics firm,
began tracking flips.
House
flippers in the second quarter of this year saw an average gross profit
of $62,000, up from $57,900 in the second quarter of 2015. That gross
profit represented an average 48.8 percent return on the original
purchase price, up from a 47.5 percent a year ago.
"Home
flipping is becoming more accessible for smaller operators thanks to an
increasingly competitive lending environment with more loan options for
real estate investors, who are also benefiting from the historically
low mortgage interest rates," said Daren Blomquist, senior vice
president at ATTOM Data Solutions. "That favorable lending environment
for flippers has helped to fuel the recent flipping frenzy we've seen
over the past five quarters."
A
total of 51,434 sales of single family homes and condos were completed
flips in the second quarter, up 14 percent from the previous quarter and
up 3 percent from a year ago to the highest level in six years. [ATTOM
defines a flip as a property sold in an arms-length sale for the second
time within a 12-month period based on publicly recorded sales deed
data.]
"It's
so fast and it's so hot, you really have to be careful about who's
doing the work, because you're going to pay that premium just to get
that flip, but you need to look behind the curtain to see how they did
it," Rice cautioned.
Close
to 40,000 investors, both individuals and institutions, completed at
least one home flip in the second quarter of this year, the highest
number in nine years. Home flipping peaked about 10 years ago, during
the height of the housing boom, when mortgages were easier to pick up
than a quart of milk. That is not the case today.
"While
an increasing number of flippers are financing their purchases, more
than two-thirds are still using cash to purchase compared to about
one-third using cash to purchase back in 2006," said Blomquist.
With
so many new flippers in the market, the concern is in the craft. Rice
actually spent more than a year remodeling her house, her fourth flip.
That is longer than usual, but at her price, the house had to match the
high-end market.
"The
market is pretty strong for fixtures, finishes — everybody watches the
TV shows. They have an expectation, and we want to meet it," said Rice.
There were also a few bumps along the way.
"In
the TV shows, it's always this big dramatic thing, and then they go to
commercial. That actually happens," Rice said in an interview last June.
"It's either new plumbing from the main line, we had to tear off an
entire section of a house and rebuild it that wasn't in the budget, but
in the end, you know that you make contingency plans to make sure that
you can accommodate whatever you see when you start working."
Culled from cnbc in yahoo finance
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