House flipping is back and growing in the East Valley

November 8th, 2017 | by Santan Sun
House flipping is back and growing in the East Valley
Business
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By Wayne Schutsky

The residential house-flipping market is active in pockets throughout the East Valley, with much of the activity driven by motivated investors providing inventory for the first-time homebuyer market.

The volume of flipped homes in the East Valley was up 23 percent between July 2016 and July 2017, which is 3 percent higher than the activity bump in the Phoenix Metro as a whole, according to information provided by Tina Tamboer, senior research analyst at The Cromford Report.

The Cromford Report defines flipped homes as properties acquired and sold within a six-month period.

The market is largely being driven by low-priced homes that can be renovated and sold in the $150,000 to $250,000 range to buyers looking for “like new homes within the first-time homebuyer price range,” Tamboer said.

There is a dearth of new inventory for those buyers to choose from as homebuilders focus on building houses in the $300,000 to $500,000 range. The median square footage for homes flipped in the East Valley is about 1,600 square feet, which is a smaller footprint than the typical new home in the area.

The East Valley is a “frenzy market” right now and “if they price it right, the home will sell very quickly,” Tamboer said.

However, buyers need to do the proper due diligence to ensure the quality of a flipped property they would like to purchase.

In 2012, following the housing crisis, many flipped homes required a complete overhaul and flippers could not get away with making only minor or subpar improvements, Tamboer said.

The market has changed since that time as the distressed home market dries up.

Today, flippers are acquiring more homes that do not require a ground-up renovation. Some flippers are getting sloppy or performing superficial renovations.

“You have to really know what you’re doing in the flipped property market,” Tamboer said.

Signs of a subpar renovation could include skipping out on costlier items like roof and window replacement, HVAC upgrades and water heater replacement, Marty Boardman said.

Boardman is co-owner of FixAndFlipHub, a company that flips homes in the Phoenix market and provides educational materials for prospective flippers.

“If you can see clearly that those things weren’t done, you could be concerned that other (renovations) were done cheaply,” Boardman said.

Cheap plumbing and lighting fixtures are also warning signs.

Typically, investors are looking to make a 25 to 30 percent gain on the acquisition price of a home. The median percentage gained in the East Valley overall is around 26 percent.

East Valley flippers are seeing the highest percentage return on their investment in Apache Junction, where the median percentage return on house acquisition price was just over 40 percent between January and July.

Tempe (37.1 percent), Mesa (27.8 percent) and Chandler (23.2 percent) are other markets where flippers are seeing medium to high returns. Flippers in Gilbert are seeing lower returns, in the 15 percent range.

Apache Junction also has benefited from an active market, where the average time elapsed between acquisition and sale is just 89 days.

In order to remain in the targeted return range, investors are focusing on properties with low acquisition prices. Hot markets in the East Valley for those properties include Apache Junction, north Chandler, north Gilbert and the area along Main Street around Country Club Drive in Mesa.

While the median profit amount on flipped properties is holding relatively stable at roughly $45,000, the percentage gain is falling as rising property and renovation costs – including supplies and labor – require flippers to invest more up front to reap the same return.

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