One-on-One with ATTOM Data Solutions' Daren Blomquist | Think Realty
Insight

Q&A: The Art (and Data) Of Effective Flipping

A One-On-One with Daren Blomquist, SVP of Communications at ATTOM Data Solutions

Daren Blomquist, senior vice president of communications at ATTOM Data Solutions (formerly RealtyTrac), has spent nearly two decades analyzing housing data and providing the real estate industry with insight on housing statistics and trends. Blomquist, who is also the managing editor of ATTOM Data’s monthly newsletter, excerpts of which may be read each month in Think Realty Magazine, is an expert data miner, skilled not just in spotting real estate trends but also in identifying investment strategies and behaviors that may best serve real estate investors in any given market. TRM sat down with Blomquist to discuss two of his latest reports, one on seven habits of effective flippers and another covering where flippers are most and least active in the national housing market today.

Think Realty Magazine: What do we need to know up front about flipping before we start discussing individual markets?

Daren Blomquist

Daren Blomquist: First off, you make your money when you’re investing in real estate when you buy, not when you sell. We see this for sure in flipping. When we look at the top five markets [for flipping] in terms of which ones are the most profitable, meaning the biggest gross profits percentage-wise, flippers in those markets are buying at an average discount of almost 44 percent below full market value (FMV) or after-repair value (ARV).

On a national level, that discount is closer, on average, to less than 30 percent. In fact, the exact nationwide discount flippers are getting is 24 percent. So, flippers in the most profitable markets for fix-and-flipping are buying really low, 20 percentage points lower than the national average. That is even more important than selling high.

The most important thing to establish when you are looking at a market in terms of how well it will fit a flipping strategy is whether you can find those deeply discounted deals up front. Once you do that, then look at what you will have to do when you sell to be the first choice in the neighborhood. In fact, the average premium that flippers are selling for above market value is about 10 percent. Achieving that is an art, because you do not want to over-improve, but you do want to be the first choice out of any properties that are listed for sale.

TRM: What makes a market good for fix-and-flips?

DB: The common denominator among markets that we have identified as being relatively better for flipping than others is that they still have reasonable prices on their houses. They may not be as affordable as they were a few years ago because more and more investors are getting active in the area, but the properties are still available at reasonable price points.

The other common denominator in these markets is that economically, they are fundamentally sound. I would point out, however, that just because a market is presently “hot” for flipping does not necessarily mean it is not the right market for a new investor to start flipping.

TRM: Towards the end of 2017, ATTOM Data Solutions released a report and associated heat map indicating where flippers are “flocking and fleeing.” What trends were you able to derive from that data?

DB: It’s pretty clear based on the data that the epicenter of the housing market is moving away from the coast, inland. Investors are moving inland, and the housing action is moving with them. I think we are going to see more of that as 2018 progresses. Even in the hottest housing markets in the country right now, housing activity is slowing down.

I think that the action will grow in the middle America markets, red-state markets that have the combination of lower housing prices and good employment opportunities. We are also seeing jobs move inland, and that is a key ingredient that you will always see flippers following.

TRM: Once a flip is completed, who buys it?

DB: That is a point of great interest lately. What we are seeing is that over the course of this housing recovery, relatively few fix-and-flips were sold to FHA buyers, who we view as a kind of proxy to that retail, first-time homebuyer. In Q3 2017, only about 16.7 percent of homes that were flipped were sold to FHA buyers, meaning that flippers are less of a pipeline to those buyers and homeownership than they used to be. What we are seeing is an increase in the percentage of flips that are going to cash buyers, which would indicate that other investors, such as single-family rental investors, are buying nice, rent-ready homes from flippers, then turning around and renting those homes out. Flipping may be encouraging homeownership less now than it did in the past.

TRM: What timeline is optimal right now for flipping?

DB: The important thing to watch is how your market’s average days for a flip compares to the national average. If your market’s average days to flip is on the high side, you will want to be cautious because it probably indicates there may be difficulty moving flipped properties. An easy example of that is Hartford, Connecticut, which has one of the longest timelines to flip: 217 days. Go in with your eyes wide open, knowing you may have to hold the property longer in a market like that.

You can also look at the days on market for listed properties, which will also give you an idea of how long you might have to hold a property after you have completed the rehab. Of course, shorter is better. Most flippers I talk to are very optimistic and want a timeline of about 90 days. In reality, our data shows that the average flipper is not doing 90 days, but closer to double that.

Build in a cushion. Just as you build in a cushion with your rehab budget, you should build in a cushion with your flipping timeline that allows you to be pleasantly surprised if you get it flipped in 90 days but does not mess up your profit numbers if you exceed that.


Daren Blomquist is the Senior Vice President of Communications at ATTOM Data Solutions. Learn more at www.attomdata.com