By 2006, flipping houses was at a fever pitch; approximately 8.6% of all home sales were flips. When the markets cratered and the capital markets froze, it crushed many house flippers. Today, with robust home prices and readily available capital, the speculators (i.e. flippers) are back.
In the last quarter of 2016, flippers made about $60,000 on each house, up from about $20,000 in 2009. A decade ago, banks were actively lending money directly to home flippers. Today, there are non-banking intermediaries who are receiving money from the banks and who, in turn, lend the money to the flippers, making revenue on the spreads. Banks, knowing that their loans to the intermediary companies are being re-lent to flippers, are carefully examining how the intermediary companies underwrite and approve loans.
Loans to flippers are short-term, with interest rates ranging between seven and twelve percent (7% – 12%). Generally, the short-term loans last several months. Flippers are having to put more capital to qualify for the financing. On occasion, they are having to come up with as much as sixty-five percent (65%) of the purchase price.
A flipper’s objective is to find homes selling for as big of a discount as possible, generally around thirty percent (30%). The goal for a flipper is to do as little as possible to a house, while making it salable at market prices in the shortest amount of time. Recently, however, in some areas, flippers are buying at smaller discounts of around ten percent (10%), which becomes problematic as the market softens.
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