Thinking about buying and a home on the cheap and flipping it for big profits? That dream is all but dead as sales of homes to investors have dropped by more than half over the past five years, according to CNNMoney.com. Plus, the number of those investors who quickly sell off those homes — the flippers — has fallen even faster. In July, investors flipped only 50% of their purchases, down from 75% a year earlier, according to Tom Popik, research director for Campbell Surveys, which tracks housing trends for major banks and government agencies. They held onto the rest to rent out.
David Hicks, president of HomeVestors, the “We Buy Ugly Homes” company, says his clients are now much more likely to buy rentals than to flip — 57% more likely than two years ago, according to a recent survey the company conducted.
Right now, many investors are looking at a buy and hold strategy. In the Greater Philadelphia area, you know see many flippers renting out their properties and anticipating a minimum 5 year hold before testing the resale market. The rental economics simply make more sense than flipping. Additionally, the demand for rental is on the rise and rents are up 10% to as high as 25% locally. Investors can buy and rent out the homes and start earning good returns immediately.
Most real estate investors are individuals and small partnerships who tap their own assets. They use savings, retirement accounts and home equity lines of credit for the cash they need. Flippers can turn that capital over several times a year, but if they buy and hold, they deplete their cash and can make no new purchases.
Overall, real estate is still a great, stable investment that has the ability to yield a positive cash flow almost immediately. The quick, big hit that a flip can provide is no longer out there. The conservative, long term hold is clear segment of the market in which consumers can make money.