Home Flipping Up, But Gross Profits Fall

The number of homes investors flipped last year increased by 14% even as profit margins sank to their lowest level since 2008.

According to real estate data curator ATTOM’s 2022 U.S. Home Flipping Report, 407,417 single-family homes and condos flipped in 2022, up 14% from 357,666 the previous year and up 58% from 2020.

But homes flipped last year typically generated a gross profit — the difference between the median sales price and the median amount originally paid by investors — of $67,900, down 3% from $70,000 in 2021. That translated into a nationwide 26.9% return on investment (ROI) compared to the original acquisition price.

The nationwide ROI was down from 32.6% in 2021 and from 41.9% in 2020.

“Last year, home flippers throughout the U.S. experienced another tough period as returns took yet another hit. For the second straight year, more investors were flipping but found no simple path to quick profits,” ATTOM CEO Rob Barber said. “Indeed, returns are now at the point where they could easily be wiped out by the carrying costs during the renovation and repair process, which usually accounts for 20% to 33% of the resale price.

Investors’ profit margins dropped for the fifth time in the past six years as the median value of homes flipped rose slower than the median price they paid to buy properties — 12% versus 17%.

“While declining margin is certainly a cause for caution, it is important to remember that these numbers are somewhat backward-looking in that they reflect dispositions of properties that were acquired in 2021 or early 2022 amidst the COVID-induced bidding wars in many locales,” said Maksim Stavinsky, co-founder and president of financial services platform Roc360. “On the other hand, it is encouraging that investors were able to clear in excess of 400,000 properties — the most ever — in an environment of rising interest rates without a meaningful increase in project timelines.”

The decline came during a year when the decade-long home price runup started to stall and mortgage rates and inflation rose, cutting into what some buyers could afford. That resulted in less demand and reduced prices for resales.

Even so, home flips as a portion of all home sales increased from 2021 to 2022 in 216 of the 218 metropolitan statistical areas the report analyzed, with the biggest jumps in the South and West. The only metro areas where home flipping rates declined were New Orleans, Louisiana, down 8.2%, and Green Bay, Wisconsin, down 2.9%.

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“This year will reveal more about whether investors decide to find different ways to profit from home flipping or take a step back and wait for conditions to get better,” Barber said.

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