iBuyer Statistics 2021-2022, 2020-2019
- In 2021 Q2 Zillow purchased 3,800 homes and won’t buy anymore in 2021.
- Los Angeles house flipping yields the most ROI of any city in California.
- 80% of Americans prefer to buy a turnkey rather than a “fixer-upper.
- Many home flippers follow the “70% Rule” of offering no more than 70% ARV.
- Share of cash flips have increased from 57.1% in 2017 to 58.3% in 2020.
- Nearly 6% of all home sales in 2020 were flips.
- ROI for home flippers fell from 41.5% in 2019 to 40.5% in 2020.
- Average gross flipping profit for 2020 was $62,188.
REAL ESTATE I BUYERS AND HOUSE FLIPPERS FACTS 2021-2022
Zillow Home Buying
Real estate site Zillow entered the home buying market for awhile until it announced after the second quarter it would stop buying homes the rest of 2021. In Q2 the company purchased 3,800 homes but announced afterward it had reached its level of capacity for buying homes this year. Some factors driving up prices that may have contributed to this decision include low inventory and a labor shortage. In other words, 2021 is not typically the “ideal time to buy” for the average investor due to high prices. The best time to buy, according to real estate experts, is when the inventory is high, which pulls prices lower. Even though Zillow uses algorithms to estimate home values, it uses employees to close deals.
Los Angeles ROI
Los Angeles County is California’s leading hotspot for the most profitable home-flipping in the state. The Orange County Register reported that the market’s average profit from a flip in 2020 was $135,000 per home. The market is ideal for flippers due to its massive population where plenty of buying and selling opportunities exist. Many homeowners who just want to leave the state for somewhere else that’s more affordable are more flexible in their price negotiations. These scenarios can lead to liquidation at lower prices just to ensure money in the bank for the homeowner. Other key home flipping areas in Southern California are Ventura and Irvine.
Turnkeys Over Fixer-uppers
Despite the red hot housing market in 2021, a majority of home buyers prefer move-in ready homes over fixer-uppers that require further investments. A recent Coldwell Banker survey of over 2,000 adult Americans found that 80% of Americans favor turnkey homes over “as is” homes. The costs of renovation have surged during the pandemic era due to strained supply chains. Much more profit potential exists in the short-run for flippers on “as is” purchases that can be flipped to another “as is” buyer. The challenge is to promote the home to the “as is” niche market.
70% Rule for Home Flipping
The real estate industry standard for home flipping is known as the 70% rule. At its core this rule demands that the investor offers no more than 70% of a property’s after-repair value (ARV). Any required repair work is then subtracted from the 70% amount to ensure profits are baked in for the next flip. This price differential allows the flipper to capture an even greater return by negotiating to the low range followed by a flip sale in the high range.
Flippers Increasingly Use Cash
As home flipping increases, more and more investors are paying for homes with cash rather than financing from a lender. Since most cash-crunched Americans cannot afford this option, financing is still the norm for mainstream home buyers. But well-capitalized investors are in a different paradigm and are able to make large cash transactions. The trend among investors shifting to cash for home buying has been consistent the past three years. From 2017 to 2020 the share of cash flips had ticked up from 57.1% to to 56.9%. By contrast, financed flips fell from 42.9% to 41.7%.
Flipping Accounts for 6% of Home Buying
Flipped home sales accounted for 5.9% of all home buying in 2020, which reflected a decline by 13.1% in 2020. In 2019, flipped home sales represented 6.3% of all home sales. In 2020, 241,630 homes and condos were flipped versus 245,864 flipped in 2019, marking an increase of 2% from 2018.
ROI for Home Flippers Slipped in 2020
Even though return on investment for flippers has increased the past few decades, profit value slipped in 2020 for the third straight year. The amount of return fell from 41.5% in 2019 to 40.5% in 2020. Compare that with ROI of 46.4% in 2018. Again, even though ROI is still much higher for flipping than at the start of the millennium, the 2020 ROI figure is at its lowest level since 2011, which marks a 10 percent decrease. Keep in mind these figures don’t take into account property taxes, which cut into profits. Part of the reason for lower ROI is rising renovation costs.
Average Flip Profit in 2020 was $66k
Here’s where the numbers might seem confusing, but still make sense. Even though average gross profit has squeezed thinner since 2011 in terms of ROI percentage, 2020 ROI still achieved its highest profit since 2005 in dollar amount. That ROI figure reached $62,188 in 2020, which was about $66,300 above the median home price. Overall flipping activity declined in 2020 yet gross flipping profits were up in dollar value. These figures can be misunderstood if one does not take into account the numbers do not reflect various expenses involved with taxes, renovation and flipping. These expenses can run anywhere from 20 to 33%.