More flippers seek financing as sale profits decline: Attom

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More flip-and-fix property buyers seek financing for their purchases as fewer distressed homes come on the market and sales margins narrow, said 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 2017's second quarter.

"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%).

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Distressed Foreclosures REO Purchase Attom Data Solutions