House flipping in the Sacramento area is on the rise, but returns on those investments are shrinking, according to first-quarter data released Thursday by research firm ATTOM DATA Solutions.
More than 560 homes were flipped during the first-quarter, which was 8.6 percent of all home sales in the Sacramento metro area — up 2 percent from a year ago. Seven percent is the average, both for the nation and the state.
ATTOM Data Solutions’ Daren Blomquist says people who flipped homes in the Sacramento metro area between January and March saw an average return of $85,000 per flip.
"Which sounds great,” he says, “but because prices are higher in Sacramento in general than the rest of the country, that $85,000 per flip represented a 33 percent return on average, which is below that national average of 48 percent return."
And it's below a year ago, when Sacramento flippers were seeing a nearly 40 percent return.
But flippers aren't necessarily getting rich from those returns. Much of that $85,000 is spent on contractors, work crews, real estate agents and other expenses needed to rehab dilapidated homes that are a blight to the neighborhood.
The Arden-Arcade and North Highlands neighborhoods have seen a particularly high number of homes being flipped or remodeled, according to Blomquist.
"The top zip code for home flipping is 95821 where 21 percent of all sales were home flips,” Blomquist said. “That's an incitation there may be some gentrification going on."
He said that more flipping in this zip code could be raising home prices and putting them out of reach for some buyers.
"But on the other hand, it may be improving the housing stock in those areas and buyers who may not have otherwise thought they would want to buy in those zip codes, now have inventory that they can buy," he said.
It’s also taking longer to flip homes in the Sacramento area than it was last year, according to the ATTOM Data Solutions study, which could mean that flippers are having more trouble selling their homes.
"It's a little bit too early, I think, to call that,” Blomquist said. “But similar to 'days on market,' when we look at the overall real estate market, those 'days to flip' is an indicator, as those go up, that the market might be getting a little bit softer in Sacramento."
The median price of a flipped home in Sacramento between January and March was $340,000.
For this study, flipping is defined as a property that sold for the second time within a 12-month period.