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When a home is bought and resold within a period of a year it is called flipping and the profits depend on the condition housing market and on the cost to flip. Most flippers upgrade or improve the house to increase their returns.
According to property database ATTOM, even with the pandemic affecting the economy, approximately 80,000 single-family homes and condominiums were flipped during the second quarter of 2021, which is almost 5% of all home sales.
In the second quarter, the gross profit on a typical flip rose to $67,000 because the home values increased.
Overall the profits were low because of the drop in return on investment, which is calculated after all the costs of the flip are considered.
The return in the second quarter of 2020 was 40% and it dropped to 33.5% in the second quarter this year.
Todd Teta, chief product officer at ATTOM even after renovation and holding expenses a 33% profit on short-term investment is pretty decent. He added some flippers are seeing better profits than in others.
Due to inflation and supply chain disruptions from the pandemic, the cost of rehabbing the home is much higher, this is one of the main factors for the shrinking of returns.
He added the labor shortage also affected flippers, leading to further delays and increased costs, which may affect profits in the coming quarters also.
Reference Source: CNBC
