Bay Area house flippers face lean year, economists say
Published 9:00 am Sunday, February 1, 2015
SAN JOSE, Calif. — San Jose and San Francisco lead the nation in house flipping, according to a study released Thursday by online real estate site Trulia, but the best days for making a profit may be over as price gains slow.
The market changes have created dangers for amateurs and slim pickings for professionals who buy, fix up and resell homes in a short time, hopefully at a profit.
“People better be awfully careful,” said Kathy Fettke, CEO of Real Wealth Network, an investors club.
“Price gains can’t happen forever. This is a pattern that happens every 10 years, where things go really well and suddenly they don’t,” she said. “The amateurs are going to get clobbered.”
Trulia economist Ralph McLaughlin said “flipping is going to slow down over the coming year, primarily because we’ve seen house price gains slowing.”
Flips accounted for 2.5 percent of the East Bay’s home sales from 2013 to 2014, sliding from 3 percent a year ago. The South Bay was 4 percent, up from 2.8 percent a year ago, and San Francisco was 3.8 percent, up from 2.1 percent a year earlier.
That makes the San Jose and San Francisco metro areas the No. 1 and No. 2 metro areas in the country for flipping.
Still, McLaughlin said, “it’s not near the level that we saw during the bubble.”
“It’s harder to find deals right now,” agreed Beau Eckstein of SFR Ventures. It’s still possible for an investor with a good team of contractors to make money buying and fixing up a house, he said. “But a lot of people jumped in and did well because the market was doing well, and I see them having a lot of problems right now.”
Trulia’s study tracked only “traditional” flips — homes that were bought at market rate and resold at a higher market rate, as prices rose. Purchases of distressed properties were not included.
There isn’t that much of either type to buy and flip, say professional investors.
“We’re doing them when we can find them, but they’re harder to get. The market is obviously tighter,” said Glenn Polf of Diversified Ventures Group.
For example, Polf said his group bought a house in East Oakland at auction but only broke even on the resale.
“We overpaid. That’s what happens when you don’t get deals for a while. You get a little bit more aggressive. We were more optimistic than we should have been,” he said.
“There’s not a lot to choose from, for foreclosure buyers like myself,” said Polf.
Today’s high prices cut into profit when the home is resold, making flips riskier. Fettke said, “Most people get into flipping at the wrong time. If you’re starting now, you better be sure you’re getting a price at least 30 percent below market.”
“The buyers are paying such a premium for houses, it doesn’t make sense for flippers,” said Alisha Karandikar of CSR Real Estate Services in San Jose.
“The acquisition costs are so high, that one little tweak in the market and they are going to lose their shirts,” she said.
Karandikar, who helps investors find homes to buy, predicts that this year “it is going to be tough, very tough to flip in our area. I have some deals, but they’re off market. You have to drive around neighborhoods, look for the worst possible house on the block, and say hey do you want to sell your house?”
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Top 10 metro areas for house flipping
1. San Jose2. San Francisco
3. Knoxville, Tenn.
4. Bakersfield, Calif.
5. Nashville, Tenn.
6. Orange County, Calif.
7. Fort Lauderdale, Fla.
8. Ventura County, Calif.
9. Cambridge-Newton-Framingham, Mass.
10. Riverside-San Bernardino, Calif.
