Ser­vic­ing

Av­er­age prof­its fell to a two-year low of $65,520, down from $69,500 for the first quar­ter and $69,000 for 2017’s sec­ond quar­ter.

National Mortgage News - - Contents - By Brad Finkel­stein

More flip­pers seek fi­nanc­ing as sale prof­its de­cline

More flip-and-fix prop­erty buy­ers seek fi­nanc­ing for their pur­chases as fewer dis­tressed homes come on the mar­ket and sales mar­gins nar­row, ac­cord­ing to At­tom Data So­lu­tions.

In the sec­ond quar­ter, 32.5% of prop­er­ties pur­chased were ac­quired via a dis­tressed sale (fore­clo­sure or real es­tate owned), down from 35.8% in the first quar­ter and 38.7% in the sec­ond quar­ter last year.

The states with the high­est share of sec­ond-quar­ter home flips pur­chased via a dis­tressed sale were New Jer­sey (64.1%), Delaware (60.3%), In­di­ana (55.4%), Mary­land (52.8%) and New York (48.4%).

The all-time high was in the first quar­ter of 2010, at 68.2%.

Mean­while, 48,768 sin­gle-fam­ily homes and con­dos were flipped in the sec­ond quar­ter, 5.2% of all sales. This was down from a 6.6% home flip­ping rate in the first quar­ter and 5.4% one year prior.

Av­er­age prof­its fell to a two-year low of $ 65,520, down from $ 69,500 for the first quar­ter and $ 69,000 for the sec­ond quar­ter of 2017.

“Fewer dis­tressed sales are lim­it­ing the abil­ity of home flip­pers to find deep dis­counts even while ris­ing in­ter­est rates are shrink­ing the pool of po­ten­tial buy­ers for flipped homes,” Daren Blomquist, At­tom’s se­nior vice pres­i­dent, said in a press re­lease.

“These two forces are squeez­ing av­er­age home flip­ping re­turns, push­ing in­vestors to lever­age fi­nanc­ing or mi­grate to mar­kets with more dis­tressed dis­counts avail­able to achieve more fa­vor­able re­turns.”

To ad­dress the squeeze, a greater per­cent­age of home flip­pers have been turn­ing to fi­nanc­ing for their pur­chases in re­cent years.

In the sec­ond quar­ter, 38.6% of flip­pers used fi­nanc­ing, up from 36.8% in the first quar­ter, although down from a 10-year high of 39.6% one year ago.

Be­tween the third quar­ter of 2009 and sec­ond quar­ter of 2013, less than 30% of flip­pers sought fi­nanc­ing.

“Ac­qui­si­tion prices have been creep­ing up, and it’s now more dif­fi­cult for in­vestors to buy with cash than pre­vi­ously, but high prices are not the only rea­son flip­pers are turn­ing to fi­nanc­ing,” Robert Green­berg, chief mar­ket­ing of­fi­cer with Patch of Land, a peer-to- peer lend­ing mar­ket­place for real es­tate in­vestors, said in the press re­lease.

“We see many bor­row­ers com­ing to us sim­ply for the abil­ity to make more money. Fi­nanc­ing can be the an­swer to mak­ing more profit over­all: an in­vestor that nets $ 30,000 per flip af­ter pay­ing $ 5,000 to $10,000 for fi­nanc­ing costs can make $90,000 on three flips with the same amount of cash re­quired to make $ 40,000 on a sin­gle flip.”

States with the high­est share of flips pur­chased with fi­nanc­ing were Rhode Is­land (63.8%), Colorado (57.1%), New Hamp­shire (53.4%) Min­nesota (50.2%) and Wash­ing­ton (50%).

The Colorado cities of Fort Collins and Colorado Springs had 66.7% and 66% of flips pur­chased us­ing fi­nanc­ing, while in Gree­ley, it was 59.6%.

To ad­dress the squeeze, a greater per­cent­age of home flip­pers have been turn­ing to fi­nanc­ing for their pur­chases in re­cent years.

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