Professional house flippers with nationally syndicated TV shows make it look easy. House flipping is anything but. Being a successful flipper requires knowledge, patience, resources, and the willingness to take some pretty big risks. So here’s the million-dollar question: is there still money to be made in this endeavor?
House flipping was big business during the housing boom of the 1990s and early 2000s. But as demand for houses started to wane, flipping became less attractive. Fewer people were doing it. That changed within the first few years following the 2008 housing crash.
From about 2012 onward, house flipping gradually picked up steam. But then it died again in 2021. So what’s the deal? Why the fluctuations? It goes back to the tried-and-true principle of supply and demand.
Supply and Demand Determines Prices
Everything a flipper does is rooted in pricing. The successful flipper needs to be careful about how much they pay for new properties. They need to be careful about how much they spend on renovations. They need to sell at a price high enough to cover their costs and profit margin. It is pricing, pricing, pricing.
Successful flippers know that real estate values are determined almost entirely by supply and demand. When demand is high and supply is low, homes fetch the highest possible prices. In the opposite scenario, home prices fall. If you can understand this basic principle, you can easily explain the ebbs and flows in house flipping from the 1990s through the current time.
How It Went Down
During the 90s, builders couldn’t build new homes fast enough. The demand was such that house flippers had no trouble getting the prices they wanted. But then in the early 2000s, housing demand started to fall. Many flippers gave up while others simply decided to bide their time.
The most savvy among them recognized the 2008 housing crash as an opportunity to acquire new properties at a fraction of their previous prices. They sat and waited until the time was right for housing demand to pick up. A few years later, beginning in 2012, flippers started buying dirt cheap houses in order to meet pending demand.
As you know, the housing market has steadily increased since late 2012 and early 2013. Surprisingly, the pandemic did not put negative pressure on home prices. In fact, prices continued to rise – and at an alarming rate. That’s eventually what put a damper on house flipping in 2021. Flippers could sell at higher prices, but they also had to pay more for the homes they bought. The math didn’t work out.
Still a Viable Option
Even with house flipping back in one of its down cycles, it is still a viable option for investors who have what it takes. The key to success, above and beyond just knowing how to identify attractive properties, is funding
Actium Partners, out of Salt Lake City, Utah, says that hard money and bank loans are the two most commonly utilized options. Actium Partners doesn’t make loans for house flipping, but they say that plenty of hard money lenders around the country do. Hard money gives flippers access the quick cash for fast property acquisition. But it comes with higher rates and shorter terms.
If you know how to identify lucrative properties, you have a strong source of funding, and you are able to do most renovations yourself, there is money to be made in house flipping. How much depends on the state of the market at any given time. If you want to try it, just be prepared to take some risks.