Dec 23, 2021
I’ve seen the 2021 House Flipping Report and some of you should be terrified. I’ll tell you why on this episode of Flipping America.
It looks like we are going to finish 2021 with about 350,000 homes flipped nationwide. How does this compare to 2020? And what does 2022 look like? We will get into that today on the show.
We won’t know the actual numbers until about March of 22, but based on what I’ve seen so far, it looks like we are flipping about 80-90,000 homes per quarter across the country. That volume is down a bit from 2020, but we are holding steady at about 5% of all homes sold. Here’s something important - gross profits are down. According to Attom Data, gross profits this year averaged about $69,000 per property, which is just slightly less than last year, but this is the important part, the average ROI is down to 33% - down from 40% last year. In a few minutes I’ll break down this data, talk about why this is happening and suggest what you might do about it.
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Why does Attom Data only report gross profits? They don’t know cost of repairs or other expenses, like cost of capital. But I would put it at 25-30% of ARV.
How does the profit remain the same and ROI go down by almost 18% (from 40% ROI to 33%) on flips?
What should we do? Lower our expectations? Accept lower profits or margins?
Acq 400k. ROI 33%. ARV? Feel free to double check my math.
Gross Profit = ARV - ACQ. Let’s say ARV is x and ACQ is y. Because we know the ROI average is 33%, we want to solve for something else. Let’s solve for ARV.
ROI = GP/ACQ, right? And GP = x-y. So here’s the formula.
ROI = (x-y)/y. We want to solve for x (ARV).
(ROI)y = x-y
(ROI)y + y = x
ACQ = 400k
ROI = 33%
ARV is $532.
Based on the average numbers from flippers across the country, costs are about 25% of ARV. In this case that’s $133k.
This is a ZERO profit deal. So according to ATTOM Data averages, most flippers aren’t making any money. You would do just as well to sit home and do nothing.
Furthermore, if your net ROI is less than 10% you’re wasting your time. Put your money into a fund and do something different with your time.