RALEIGH – In Wake County’s hot real estate market, 7 percent of all homes sold in 2021 were considered “home flips” even as investors are buying one in every four homes in the Raleigh market and one in every five in the Durham market.
That’s according to the latest data from ATTOM Data Solutions.
A flip is when a property is purchased and then resold within a 12-month period. Investors or iBuyers often acquire property, make repairs and updates, and then resell the home to consumer buyers or to other investors. Investors participate in this process due to the opportunity to generate positive profit margins, but the national trends may be making it less lucrative for flippers to operate.
The ATTOM data shows that home flipping profit margins are down nationally. It also shows that fewer flips occurred as a percentage of the overall market in 2021 than 2020.
But in the Raleigh market, the data shows the opposite is occurring. Raleigh is one of just five markets with more than one million residents where home flippers saw an increase in profit margins in 2021 compared to 2020.
Flipping less profitable — except in Raleigh
The data shows that, on average, flipping homes in highly populous areas with more than one million residents was less profitable for real estate investors in 2021 than in the prior year unless that home was located in Raleigh’s metropolitan statistical area or four other regions. Across the entire MSA, which includes Wake, Johnston and Franklin Counties, profit margins rose from 14.5 percent in 2020 to 19.8 percent in 2021.
“The Raleigh market continues to be one of the hottest markets in the country, and that’s true whether the home seller is a consumer homeowner or a fix-and-flip investor,” said Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company, in an interview with WRAL TechWire. “Rising purchase prices caused gross margins to decline in most MSAs, but in Raleigh, home price appreciation continued to rise enough that investors were able to improve their gross profits on a flip.”
Behind the data
According to the data, the median purchase price of all of the homes flipped in Wake County in 2021 was $274,000. The median resale price of those homes was $325,000.
That’s a gross profit of $51,000. That’s a gross profit margin of 18.6 percent, up from 13.5 percent gross profit margin in 2020, according to the data set.
In Durham County, the gross profit of the median flipped home was $82,500, or 40 percent gross profit margin. That’s up from $48,000 the year before, when the profit margin was 26.5 percent.
But as home prices have risen, it’s better to consider the percentage profit margins rather than the gross profits, said Sharga, in understanding market activity.
“It’s more likely that higher-priced homes in Wake County were flipped in 2021 than that the prices jumped up that much on similarly-priced properties,” Sharga noted. “That’s one of the reasons we focus on percentage of gross margins more than the prices themselves.”
According to ATTOM’s data set, the median purchase price across the entire 2021 calendar year throughout the entire Raleigh MSA was $261,750, and the median flipped price was $313,492. Compare that to the median data from the fourth quarter of the year: a $300,000 median purchase price to a median flipped price of $352,950.
“The Raleigh market is probably experiencing more rapid home price appreciation than most other metropolitan statistical areas across the country,” said Sharga.
One analysis placed Raleigh seventh in the nation. Another placed Raleigh fourth in the nation. And Zillow forecast that Raleigh would see home values increase as much as 24% between December 2021 and November 2022, third in the nation.
February 2022 marked the least affordable housing market in the Triangle in history, according to the Triangle Multiple Listing Service.
Since that report, mortgage rates have ticked up, making borrowing money for a home purchase loan more expensive, with a fixed-rate 30-year mortgage now averaging 4.67% nationally according to a weekly survey of the mortgage market conducted by Freddie Mac.