Farmersville is listed in top 20 zip codes for flipping houses, local realtors say probably not
FARMERSVILLE – Is the small town of Farmersville one of the hottest places in the nation for flipping houses for profit? It is if you believe a recent report by an online real estate database.
ATTOM Data Solutions, a real estate data analyst and management company, reported on March 8 that Farmersville, Calif. was in the top 20 zip codes for the highest 2017 home flipping rate. The ranking was compiled from nearly 6,000 zip codes with at least 10 home flips in 2017. “Flipping” is a real estate term for buying a home under market value, fixing it up and then selling it for a profit usually within the same year.
So how did Farmersville, a town of just 2,300 homes, make a list that included cities like Memphis, Tenn.; Baton Rouge, La.; Los Angeles, Calif.; Washington, D.C; Philadelphia, Penn.; Houston, Texas; Miami, Fla.; and Saint Louis, Mo.?
Local experts say it probably didn’t. Robert Holguin, president of the Tulare County Association of Realtors, has more than 20 years of experience flipping houses. He said in the last five years he has flipped more than 30 homes in Visalia, about five in Exeter and just one in Farmersville.
“Tulare County has been a great place for flipping houses, but primarily in the Visalia and Tulare area,” Holguin said.
ATTOM stated that it was tracking the number of single family homes or condos flipped as any property that had sold twice within 12 months as buyers and sellers do not disclose if the purchase is for the purpose of quick turnaround profit. Holguin said he would be surprised to see any Central Valley communities at the top of that list because the market here has slowed dramatically. House flipping in the Valley peaked five years ago and is currently about a quarter of what it was.
ATTOM Data Solutions’ report showed that nationwide home flips were at their highest level since 2006. The company reported that 207,088 homes were flipped in 2017 representing a 5.9 percent of all single family home and condo sales during the year, up from 5.7 percent of all sales in 2016 to the highest level since 2013.
A total of 138,410 entities (individuals and institutions) flipped homes in 2017, up 4 percent from the 133,407 entities that flipped in 2016 to the highest level since 2007 — a 10-year high.
“The surge in home flipping in the last three years is built on a more fundamentally sound foundation than the flipping frenzy that we witnessed a little more than a decade ago,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Flippers are behaving more rationally, as evidenced by average gross flipping returns of 50 percent over the last three years compared to average gross flipping returns of just 31 percent between 2004 and 2006 — the last time we saw more than 200,000 home flips in consecutive years. And while financing for flippers has become more readily available in recent years, 65 percent of flippers still used cash to buy homes flipped in 2017, nearly the reverse of 2004 to 2006, when 63 percent of flippers were leveraging financing to buy.”
Completed home flips in 2017 yielded an average gross profit of $68,143 (difference between median purchase price and median flipped sale price), up 5 percent from an average gross flipping profit of $64,900 in 2016 to a new all-time high for as far back as data is available (2000).
The average gross flipping profit of $68,143 in 2017 represented an average 49.8 percent return on investment (percentage of original purchase price), down from an all-time high average gross flipping ROI of 51.9 percent in 2016 but still the second highest average gross flipping ROI of any year as far back as any data is available (2000).
“I think it is starting to feel a little like 2007 again, only with one major difference: the people buying investment properties are not ‘sub-primers’, but investors with more sophisticated deal sourcing methods,” said Brad McDaniel, co-founder and CEO with Likely.AI, a company that applies artificial intelligence and machine learning to predict future events in real estate and mortgage origination. “One of our clients, in the wholesale business, made a strategic move to become more data-driven in all aspects of their business. I believe this trend, the adoption of big data, and AI by residential real estate investors, is in its infancy. It’s been said that real estate is a laggard when it comes to technology adoption; that is changing because of AI.”
The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property’s after repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the first sale (purchase) price.
Holguin said at its peak, home flips in Tulare County had a return on investment that capped off at about 40%, or about 25% after expenses. He said the average home flip in the Valley right now is at 10% or less after expenses.