Flip-flopping on Flipping

Why Flipping Profits Are Cooling Down, and Why That’s Good News

Home flipping isn’t dead. But it’s changing fast.

Profits are down across key markets. In Orlando, average returns fell from nearly $65,000 in 2012 to just under $49,000 in Q3 2013, a drop of nearly 25%. That translates to a return of 41% in 2013, down from 61.1% in 2012, according to ATTOM Data Solutions.

That’s not just a blip. The shift reflects broader market maturity. Flipping once thrived on fast price swings and low inventory. Now rising home prices, increased foreclosure activity, and tighter lending standards are reshaping how the business works.

For short-term traders, this is a reality check. For long-term investors, it’s a sign of stability.

Flipping in 2013: From Boom to Balance

Back in 2012, flipping was a high-return, high-volume game. In the first quarter of that year, 6.9% of all home sales were flips, per ATTOM Data Solutions. That’s nearly seven out of every 100 homes changing hands in under a year.

By the first half of 2012, flippers in the Tampa Bay area were pulling in $25,000 on average per property, according to HUD USER. That number was a major draw for new investors, many of whom got in after hearing stories about quick flips and easy money.

But by 2013, the math changed. In Orlando, the average flip profit dropped to $48,983, a steep drop from $64,778 in the same period the prior year. The average return slipped from 63% to 41%.

This isn’t isolated. Flipping volume in Phoenix fell by 42% in the first half of 2013 compared to the same period in 2012, while California’s Inland Empire saw the number of flips drop by 38% year-over-year.

Why? The market is overheating. Rising home prices, up 6.9% nationally in the first half of 2013, are squeezing out low-end flippers who rely on cheap, distressed homes.

Meanwhile, the Federal Reserve’s continued hold on interest rates has kept mortgage rates low, but not low enough to fuel another speculative bubble. The average 30-year fixed rate was 4.56% in October 2013, according to Freddie Mac.

What “Flip” Really Means, and Why the 6-Month Rule Isn’t Always Fair

One of the biggest issues with flipping data is definition. RealtyTrac defines a flip as a home sold within six months of purchase. That’s fast, even for a pro.

But that timeline excludes many investors who buy and hold for 12 to 18 months. These investors aren’t flippers, they’re long-term holders. Yet their sales still count as “flips” in some reports.

That means the true number of speculative flips might be even lower than reported. The 6.9% figure from Q1 2012 may be inflated by short-term investors who bought during the 2010-2012 recovery phase.

The Consumer Financial Protection Bureau (CFPB) has warned that “flipping” metrics can mislead if they include investors who hold properties for more than a year. The distinction matters for policy and risk assessment, not just for how the numbers look in a headline.

Even the FDIC has noted that short-term flipping often correlates with higher default risk, especially when buyers use high-leverage strategies. That’s why lenders like Chase, Wells Fargo, and SoFi now apply stricter DTI (debt-to-income) ratios to investors.

Flipping vs. Long-Term Investing: A Clearer Divide

Most real estate investors aren’t flippers. They’re focused on cash flow, equity growth, and tax advantages, not quick turnover.

For them, a cooling flip market is a positive development. It reduces noise, stabilizes prices, and allows for realistic forecasting instead of guesswork.

Take the FICO Score. Investors with a score above 740 qualify for better mortgage rates, often 1.25% lower than those with scores below 680. That difference adds up over time, especially when buying multiple properties.

Now compare that to flippers. Many rely on hard money loans from private lenders, and those loans come with APRs as high as 15%, well above the national average. So even if profits look strong on paper, the financing costs eat into gains fast.

Experian data shows that 68% of flippers in 2013 had credit scores below 700. That limits their access to traditional financing, so they turn to non-bank lenders, a move that increases risk on top of already thin margins.

Market Trends Show a Return to Normalcy

Before the 2008 crash, real estate was predictable. Prices rose slowly. Gains were steady. Investors planned for 5, 10 years, not months.

That’s what we’re seeing again. In 2013, the national median home price was $171,000, up 7.1% from 2012. But growth was more uniform this time around.

That’s a good thing. Predictability helps long-term investors plan. It allows for better budgeting, tax planning, and refinancing strategies.

A landlord in Atlanta who bought a property in 2011 for $130,000 can now expect a steady 3.5% annual appreciation, not the 20% spikes seen in 2012. That’s a far more sustainable pace.

It also reduces the risk of sudden market crashes. The CFPB has warned that markets with high flipping volumes often experience more volatility. When investors flee, prices drop fast.

That’s what happened in 2008. Now, with flipping cooling, we’re seeing fewer of those swings.

Flipping’s Decline Signals Market Maturity

Flipping isn’t going away, but it’s evolving.

Investors are no longer chasing every distressed property. They’re focusing on neighborhoods with strong fundamentals, places with decent schools, low crime, and stable employment.

In Tampa, flippers are now targeting ZIP codes like 33607 (Downtown) and 33605 (Ybor City), where median prices are rising but not at bubble levels. These areas have seen a 4.3% increase in home values over the past 12 months, well below the 15% spike seen in 2012.

Meanwhile, in Phoenix, investors are avoiding low-income areas with high foreclosure rates. The city’s foreclosure rate was still 3.1% in Q3 2013, more than double the national average.

Even the Federal Reserve has noted the shift. In its October 2013 Beige Book, it cited “a cooling of speculative real estate activity” in Florida, California, and Arizona. “Investors are becoming more selective,” the report said.

This is a win for sustainable growth. It’s worth admitting, though, that “cooling” cuts both ways: investors chasing volume over margin will find 2013 a tougher year than 2012, and some will exit the business altogether.

Flipping in 2013: A Data-Driven Comparison

Source: ATTOM Data Solutions (2012, 2013), U.S. Department of Housing and Urban Development (HUD USER), Freddie Mac (2013)

Frequently Asked Questions

Is flipping still profitable in 2013?

Yes, but profits have declined. Average returns are now 41% in Orlando and 61.1% nationally in 2012. Costs, including interest and repairs, now eat into margins more than before.

Why are profits dropping in Orlando?

Home prices rose 6.9% in 2013, reducing the spread between purchase and sale. Foreclosures are up, increasing competition. And lenders are tightening credit, especially for investors with low FICO Scores.

What’s the difference between a flip and a long-term buy-and-hold?

A flip is a home sold within six months. A buy-and-hold investor keeps a property for years, aiming for appreciation and rental income. The IRS treats these differently for tax purposes.

How does credit score affect flipping?

Most flippers have scores below 700. That limits access to traditional loans, so they turn to hard money lenders with APRs as high as 15%. Experian data shows 68% of flippers in 2013 had FICO Scores under 700.

Are there still hot markets for flipping?

Yes, but fewer. Tampa, Phoenix, and parts of California still see activity, though investors are focusing on lower-risk areas like Ybor City (33605) and Downtown Orlando (32801).

What’s the average 30-year mortgage rate in October 2013?

The average rate was 4.56% according to Freddie Mac’s Primary Mortgage Market Survey. This is below the 5.2% average from 2009 but still higher than the 3.5% rates seen in 2012.

How does the FDIC view short-term flipping?

The FDIC has noted that short-term flips carry higher default risk, especially when investors use high-leverage strategies. This can increase systemic risk in local markets.

Is the real estate market returning to normal?

Yes. Flipping volume has dropped, prices are rising steadily, and investor behavior is more cautious. The Federal Reserve’s Beige Book cited “a cooling of speculative real estate activity” in key states.

Can I flip a home with a low credit score?

It’s difficult. Most banks won’t lend to investors with scores below 680, so flippers often turn to private lenders like those in the SoFi network, but at higher interest rates.

How does DTI affect flipping profits?

Lenders use DTI (debt-to-income) ratios to assess risk. A DTI above 43% often disqualifies investors from conventional loans. That means flippers must use cash or high-cost financing, reducing net profits.