Low interest rates and rising home prices are motivating investors to buy, renovate, and sell existing homes for a profit, yet the return on investment fell to 32% in the third quarter of 2021, the lowest return in a decade. Average gross profit on home flips dropped 1.6% year-over-year to under $69,000 in the third quarter despite an increase in the share of flipped properties.
According to CNBC, the drop in profit margins is a result of smaller returns as home price increases start to slow, causing the run-up in resale prices to fall below the run-up in purchase prices.
Fast-growing prices in the housing market, as well as low interest rates, are enticing more investors to buy homes, renovate them quickly and sell them for a profit. But while home flips are rising and investors are expecting growing returns, the profits are falling.
Close to 95,000 homes were flipped in the third quarter of this year, which was an increase for the second quarter in a row after flipping dropped dramatically in the first year of the pandemic. Flips represented 5.7% of all sales, according to ATTOM, a property database.