There are fewer fix and flips in the Denver area, but real estate investors are making more on the homes, according to a national report released today.
The average gross profit on a flip in the Denver area in the second quarter was $90,928, up 12.9 percent from $80,522, according to the RealtyTrac report.
Denver bucked a national trend.
Profits on flipping homes in Denver are about 52 percent higher than the national average of $46,316. The average national profit was down 22.5 percent from $59,798 in the second quarter of 2014.
On a national level, “Home flipping is settling back into a more historically normal pattern after a flurry of flipping during the recent run-up in home prices in 2012 and 2013,” said Daren Blomquist, vice president at RealtyTrac, based in Irvine, Calif.
“Flippers no longer have the luxury of 20 to 30 percent annual price gains to pad their profits,” Blomquist continued.
“As the market softens, successful flippers will need to focus on finding properties that they can buy at a discount and efficiently add value to,” he said.
There were 646 flips in the Denver area in the second quarter, accounting for 6 percent of all sales, compared to a national average of fix and flips accounting for 4.6 percent of all sales.
Denver-area flips fell by 28 percent from the first quarter and were down 4 percent from the second quarter of 2013.
Statewide, fix and flips were down 19 percent from the second quarter of 2013.
By contrast, nationally, flips fell by 23 percent from the first quarter and 26 percent from the second quarter 2013.
Greg Geller, principal of Vision Real Estate, has been specializing in fix and flips for years. There is only one problem – the phrase “fix and flip” no longer is a fitting term in Denver’s hot housing market, he said.
Rather, what he and other real estate investors are doing in Denver, is buying market-rate homes, renovating them and then selling them for a profit, according to Geller.
“Foreclosures are dead in Denver,” Geller said. “You just don’t find the truly distressed homes like you used to during the Great Recession. A much more accurate way to describe what we are doing is value-add deals. We find homes that need some improving, pay the market rate for them, renovate them and then sell them.”
One reason that prices are going up on renovated homes that are flipped is that the entire market is rising, he said.
“The lack of inventory is driving up the price of homes,” said Geller, who next month will begin his term as president of the Denver Metro Association of Realtors.
“Another unexpected gifts is that appraisals are not the problem they were two years ago, so when there are bidding war for homes, the highest bid often takes it,” he continued. “And because of the shortage of homes, people tend to close on them. They have no other place to go if they buy it.”
Geller said even seasoned real estate investors have been surprised how much a home they fixed up might fetch.
“An investor who bought a home, fixed-it-up and listed it for $300,000, might be able to get $325,000 or even $350,000 for it,” Geller said.
Investors, in Denver at least, are better at making the improvements that give them the biggest bang for the buck, he said.
“Real estate investors are copy cats,” Geller said.
“If they see a home with specific improvements and features in North Park Hill sold for X dollars, other investors copy it,” he said.
There also is a cultural aspect driving the industry, he said.
“There’s the HGTV factor,” Geller said. “HGTV and other programs have glamorized the fixing and flipping. People watch these shows and see the profits these people are making and think: ‘Hey, I can do that.’ And you know, a lot of times the are right. They can do that.”
Also, real estate investors have found they can make a lot of money not just by buying low-priced homes, but luxury homes, too.
Joe DelZotto, principal of Delwest Capitol Group, prior to the Great Recession built lower-priced condos in Denver.
When that industry collapsed, first because of the economy and then because of construction defect litigation, he switched to developing apartments.
He also started fixing and flipping homes.
DelZotto was traveling on Thursday and couldn’t be reached, but in the summer of 2013, he noted that he had bought a mansion along East 7th Avenue in Denver, with plans of fixing and flipping it.
At the time, he said because fewer lower-end distressed homes were available, he wasn’t hesitating in buying homes approaching $1 million with plans of renovating them and then hopefully sell them for a profit.
According to records, he sold the mansion in May for $925,000.