Home flipping is big again in Orlando, but not as profitable
A few weeks ago, Carl Davis and Carrie Duvall got the keys to their newest flip, a 1950s ranch in the Mills 50 neighborhood they plan to put $200,000 into and hope to sell for a fat profit. It'll take about eight months, and in that time they want to remove the aluminum siding, put on a new roof, build a pool in the backyard and add a second story.
"This will be our biggest project," Davis said. And in a market like Orlando, where investment properties account for 15.1% of total home sales, they're expecting it to pay off big time.
Orlando is currently one of the top markets in the United States for flipping projects, ranked No. 8 by Realtor.com. Miami also made the list at No. 3, as well as Tampa, at No. 4.
House-flipping is back across many parts of the U.S., with the economy recovered from the recession and housing crisis that began in 2008. The rate hit a nine-year high this summer, with 49,059 homes being flipped nationwide, making up 7.2% of total homes sold, according to Attom Data Solutions.
"It's been a pretty steady increase in investor purchasing of properties. And it really hasn't slowed down," said John Murdock, a broker and founder of JMO Real Estate Group in Winter Park. "We're basically seeing a little bit of everything right now.
"We're seeing a lot of the newbies doing flipping, we're seeing people investing in longer-term investment strategies, and then I know a lot of people that are just sitting on the sidelines waiting because of the level of competition."
George Ratiu, senior economist with Realtor.com, attributes the number of investment properties to Orlando's strong economy. The unemployment rate is at 2.8%, a 13-year low; construction is booming; and home values continue to go up every month.
Another big factor is the sheer number of people moving to the area, 1,500 every week.
Online services like Offerpad and Open Door are operating in full force in Orlando, and this week GrowthSpotter reported that a Miami-based boutique private equity investment firm will launch a $50 million fund to repair and resell foreclosed entry-level homes in Central Florida.
Still, flipping isn't what it was after the housing crash a decade ago.
"Back when the market fell and a bunch went into foreclosure, 2008-2010 in that time frame, we were telling people if you owned a house, buy another house because the market fell so dramatically," said Jeffrey Fagan, president of the Orlando Regional Realtors Association. "If people had the means, that was a beautiful opportunity to own an investment property."
Houses were priced so low, buyers could turn big profits. But now, as more people have gotten into the flipping business, and as home costs continue to increase and inventory shrinks, the profitability of fix and flips has dwindled. The median price for a home in Orlando is $250,000, and short sales and foreclosures, once a flipper's bread and butter, make up less than 3% of sales.
An analysis released by Attom in September showed that investment properties in the U.S. netted $62,700 on average, an eight-year-low. In Orlando, flippers usually see a 41% difference in the purchase and selling prices, according to Realtor.com.
"They have to be priced low enough for an investor to be able to make a profit," Murdock said. "When you get into bidding wars, at some point, it becomes unprofitable."
For Davis and Duvall, their new house, within walking distance from Ten10 Brewing and Santiago's Bodega, will be their fourth flip. Unlike other investors, the houses they flip are their own homes. Davis works full-time at Orlando Health and Duvall as a broker.
They work on one house at a time, living in them during construction and for a few years after renovations are completed. By living in the houses, they can avoid some of the taxes other flippers have to pay.
They bought their first property in 2010, near Lake Como Park, for $160,000, invested $75,000 in upgrades and sold it in 2015 for $299,900. The home they just moved from, on East Jersey Avenue in the SoDo neighborhood, was purchased for $135,000 in 2017, and after $110,644 of renovations sold for about $300,000 two years later.
"We kind of stepped back and said, 'Wow, this is really supplementing our income,'" Duvall said.
Lynn Thompson, a local investor in Ocoee, targets homes in and around the Orlando metro area that are priced below $200,000. Her latest acquisition was a $136,000 home in Lakeland that she sold for $172,000, clearing about $22,000 in profit.
She also buys and holds houses, including about eight rental properties in Pine Hills. One cost $85,000, and after she put in about $15,000 in renovations has a current value of $140,000.
Thompson, who works full-time as a pharmacist at AdventHealth, has been flipping houses since 2007 and estimates she's rented and sold about 80 properties since then. When she needs to, she borrows money from a close friend who's a private lender but mostly rolls over profits from project to project. This year, she'll make around $40,000 from her real estate properties.
"The gross numbers make it look like easy money, but (in one instance) I paid over $8,000 in fees to the title company, over $5,000 to the buyer's real estate agent and $1,000 to a real estate attorney," said Thompson. "Shows featured on HGTV, for example, don't usually mention these high fees. You have people coming in thinking it's really easy."
Evan Shelley, founder of Simple Sale Central Florida, said the flipping market has changed, moving away from the traditional cold-calling and door-knocking. More people are marketing their services and waiting for sellers to come to them.
His business mostly targets distressed properties, ones that might have issues with titles, code violations, unpaid homeowners association fees or other problems. Most times, homeowners want to sell the house, and investors want to purchase to flip it, but those issues stand in the way.
One of his clients was going into foreclosure. The house was tax delinquent and had outstanding code violations. Once those were taken care of, Shelley found an investor to flip the property.
"It was a win-win-win. The former owner started a new life out of the scare of foreclosure. I made money flipping it to the investor. The investor made money flipping it to a retail buyer," he said.
But if those issues hadn't been cleaned up first, "they never would have touched it," Shelley said.
Despite the success stories, Fagan warned against jumping into the flipping market to get rich quick. He advises people to hold on to properties and rent them out, and reap the rewards of appreciating real estate.
"They grab a house and think they can slap some paint on it and put it back on the market and make a profit," he said. "I've been in the real estate market a long time and real estate isn't that way."