The quick answer to this question is yes for about 95% of the flippers out there.  The other 5% are what we call institutional flippers and they have 20+ people working for them finding inventory, remodeling, and selling the homes for them.  Institutional flippers, even with their systematized approach, only net about $25k or so per flip.

I was just reading an article in the Dallas Morning News last week that said 6.7% of all first quarter sales in DFW were flips (see article here). That’s up 18% from this time last year, and inventory was very tight last year. Flipping has become so sexy that everyone wants to do it.  With many professional and amateur investors going after an ever shrinking inventory of distressed properties, prices go up and profit margins go down.  Houses that have no business selling for over $225k are selling on the open market (and sadly the wholesale market) for $270k.  There goes all your profits, and if you’re lucky, you’ll exit without losing money.  The only way to win in flipping right now is if you’re able to get the inventory off market at the right price, which means you’ll have to find all your properties yourself.  This means door knocking, mailing thousands of postcards and letters, cold calling, bandit signs, etc.  Finding distressed inventory is a full time job.  You’re essentially competing with wholesalers.  More about wholesalers here.

The market is simply too hot right now and most homeowners know it, so you will likely need to wait for the next down market to buy up some cheap inventory.  This doesn’t mean the market will be lower than it is now, it just means there will be less buyer competition and more inventory on the market, so you have more chance at getting a good deal from a motivated seller.

There are options for real estate investment outside of the traditional house flipping.  Most of my clients have moved into new development or are participating in apartment flips, which typically require about $50k cash to be a player.  Both of which generate upwards of 20% annualized returns.  If you are looking for ways to put your capital into play in DFW, let me know and I’ll be happy to direct you to the right project or partnership.  See you next time!

Brandt