properties close to home. But areas like Memphis
have large numbers of fixer-uppers with low price
points, he says.
“The flipper is the middle man who comes in, fixes
up the property, gets it in rent-ready condition and
then sells it to an investor who’s going to rent it out,”
Blomquist says. “That’s part of the cycle we’re seeing
in those areas.”
Stone warns that out-of-state flipping can be risky
for individuals and small companies that have less
knowledge of the local market. “For those people, I
would say, stick in your closest one or two counties,”
Western U.S. markets like Boise, Idaho; Portland,
Oregon.; Denver and Seattle have areas where flips
are a solid, if unspectacular, part of the real estate
world. Vyzis says there are two key factors driving the
home-flip market — inventory and price. The number
of homes in sellable or rentable condition in many
markets, however, has bottomed out, he explains.
“I don’t think we’ve ever seen inventory levels as low
as they are right now,” he adds.
Blomquist says low inventory can be a favorable
condition for flippers who remain in the market
because it also helps to drive home sales and appreciation. Between the first and second quarters of 2016,
home-flip sales figures jumped 14 percent. That was
more than enough to offset a slow third quarter and
produce the best flipping market in a decade.
“I do think the third quarter is more indicative of an
anomaly,” Blomquist says. “The second and fourth quarters are more indicative of the trend we’re seeing.”
The market may be approaching a peak, however.
Stone expects 2017 to be another strong year but,
based on macroeconomic studies, he thinks 2018 and
2019 could be marked by a minor recession. Rising
Loan originators don’t have in-house fortune tellers for any aspect of business, but prudent business practices still require them to make projections about market trends, including
the future of fix-and-flip investment properties.
“I wish I had a crystal ball — and no one does,” says
Demetry Vyzis, principal and managing director at
Veristone Capital. “I think we’re still fairly bullish on
the safety that exists in the marketplace.” Vyzis adds,
however, that even though he expects values will continue to appreciate in some markets, he also suspects
that there’s not much more room for home values to
keep going up.
Attom Data Solutions’ 2016 Year-End U.S. Home
Flipping Report shows that several metropolitan
areas this past year saw home flips comprise at least
7 percent of total sales. That included markets like
Miami; Las Vegas; and Memphis, Tenn.
Memphis, in fact, is earning a reputation as the
home-flipping capital of the country. It had five of the
nation’s top 10 zip codes for flipping rates, all between
24 percent and 31 percent. The city also topped all
U. S. metro areas in the overall rate last year, with home
flips representing 11. 7 percent of total sales.
Nationwide, more than 193,000 properties were
flipped during 2016, the most in 10 years. About one-third of those required financing, meaning big business
for originators like Tyler Stone, president of Capstone
Financial, a private lender based in Scottsdale, Ariz.
Stone sees a healthy home-flip market in his backyard of Phoenix, which last year had an 8 percent flip
rate for all sales, including multiple pockets of the city
where the rate was above 14 percent. Investors still do
simple flips involving new paint, carpet and appliances, he says, but they are also going into older
neighborhoods to tear down and replace homes built
in the 1950s, 1960s and 1970s.
“People are buying old houses with eight-foot ceilings, floor plans that aren’t really functional for today’s
market … and they are just scraping those houses and
building brand-new houses there — higher ceilings,
bigger master bathrooms and larger kitchens, those
kinds of things,” Stone says.
Helpful resources for flippers include what Daren
Blomquist terms “web portals,” or online investment
sites, like HomeUnion, Roofstock and Investability —
which help connect people to out-of-state properties.
Blomquist, the senior vice president of communications at Attom Data Solutions, says investors from
California or New York, for example, are often
less confident they will get good returns if they buy
By Neil Pierson
interest rates and fewer government regulations may
not have much of a short-term impact, Vyzis suggests.
He says the bottom line is that supply and demand will
dictate sales figures. And, right now, certain markets
are short on supply, he notes.
“A lot of the REO (real estate-owned) inventories
[have] burned off,” Vyzis says. “There’s fewer foreclosure transactions because of those same factors.
There’s less product that’s readily available or right
in front of the face of the investor. They’re having to
become more creative with how they find product,
how they find on-market stuff and, potentially, off-
Still, Stone thinks some metro areas are flying under
the radar in the home-flip market. Detroit is a prime
example. Much of its central core had double-digit flip
rates in 2016 and manufacturing companies seem to
be returning to the city in droves.
“Houses are still super cheap,” Stone says, “but then
there’s nice areas of Detroit, too, so we’re seeing a lot
of loan requests for Detroit and the leading edge of
some good economic indicators there.”
Shawn Miller, CEO of 5 Arch Funding, says Los Angeles
is an example of a city with a high inventory of prop-
erties more than 30 years old. Flippers “will immedi-
ately garner significant attention” when they renovate
those homes because of short supplies of quality
He has found millennials are increasingly moving
to city centers as places to live, work and be close to
entertainment. Flippers can help turn around the
“distress” that’s prevalent in those areas and narrow
the gap between higher- and lower-end properties.
“Bringing those two markets together is really what
we’re trying to do,” Miller says. ■
“I don’t think we’ve
ever seen inventory
levels as low as they
are right now.”
Principal and managing director,
The fix-and-flip market still has some fast track ahead
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at email@example.com or (800) 297-6061.