3 Insights About Successful Home Flipping in D.C.
Earlier this year, some big news broke about D.C.’s home flipping market.
Real estate firm ATTOM Data Solutions found that D.C. had the fastest-growing home-flipping market in the nation. Year-over-year, the volume of home flips in D.C. grew 32%. This occurred over a 12-month period when the volume of home flips across the nation shrunk 6%.
During this year, D.C. (and Maryland) also gave flippers the highest profit margins on their deals. Nationwide, home flippers gained a 47.4% profit margin. But in D.C., flippers produced an average 58.3% profit margin. And Maryland home flippers created a huge 79.3% margin.
These data seem to prove a common-sense assumption—that in D.C.’s hot housing market, flipping seems like an easy win.
The truth is: Flipping can be very lucrative in D.C.
But to succeed flipping a property, there are a few insights worth keeping in mind.
Insight 1: Picking the right neighborhood is harder than you think
The above report found the two neighborhoods with the highest margins were:
- ROI: 142%
- ROI: 127%
This data makes it seem like an obvious choice. And yet there are other potential metrics that might define the success of a deal. The 20018 area code did not have the highest margins, but it had the highest gross profit in D.C. of $360,500. The neighborhood you choose to flip within will depend on what metric defines success for you, whether that is profit margin, gross profit, or even ease of flip.
To complicate matters further, the list of the top neighborhoods for flipping changes all the time. Brookland, Capitol Hill, and Trinidad have all become noticeably less profitable for flippers. And by the end of the year, the number of neighborhoods that recorded 10 or more flips dropped to only three.
Insight 2: Upfront costs can change the profile of a deal entirely
The data found that flips in Prince George’s County returned an average net cash gain of $117,223. By contrast, flips in D.C. returned an average net cash gain of $175,001.
These data seem to make the choice clear. D.C. will return an extra $57,778—or a 50% greater return—making it the obviously better area to flip homes within, right?
Maybe. You have to consider one simple fact: flips in D.C. returned about 50% more net cash gain, but the average purchase price of flipped properties in D.C. were about 100% higher than the average purchase price of flipped properties in Prince George’s County. ($299,999 vs $145,778)
To make the extra $57,778 on a flip in D.C. vs Prince George’s, you have to come up with an extra $154,221. This is a significant lump of additional upfront funding.
And this extra $154,221 only speaks to the upfront purchase price. It does not factor in taxes, renovation costs, and other expenses that can be considerably higher in D.C. than surrounding areas, and which can vary from neighborhood to neighborhood within D.C.
Insight 3: Flipping is not necessarily good nor bad for a neighborhood
You can’t escape the fact that flipping homes is a hot-button issue. The debate is very public. Both sides of the debate are very vocal on the matter. And both sides of the debate make good points.
On the one side, some opponents of flipping argue it removes entry-level home from the market. They argue developers come in, take a property that would be a good starter home, and then transform it into a luxury property that is only affordable to D.C.’s wealthy population. D.C. does have a real problem with affordable housing, making this is a concern worth taking seriously.
On the other side, advocates of flipping point out that flipping can improve a neighborhood. In a lot of low-income neighborhoods the housing stock is often not modernized, or even livable. Flippers who come into these neighborhoods and modernize properties immediately improve the livable quality of the neighborhood’s housing stock, increase property values, and raise that neighborhood’s tax base. This is also a valid argument, and speaks to one key way that private developers are helping to improve D.C.’s property values and living conditions.
When it comes down to it, home flipping can be a problematic practice, or it can be a very positive practice. It all comes down to whether or not the flipper is interested in simply making a quick buck, or if they are mindful of their role in creating a sustainable, livable city for all of D.C.’s residents.
Is Flipping Right for You?
Flipping in D.C. can produce excellent profits.
But it isn’t a guaranteed “win”—from either a financial or ethical perspective.
Getting that “win-win” comes down to finding the right deals, in the right neighborhoods, with the right partners, who can help make sure you flip in a way that does good for yourself, while also doing good for our city.
If this approach sounds aligned with your goals as a member of our development community, get in touch and we’ll discuss how we might work together. Contact us either via email email@example.com , or give us a call at 202.713.9072. Let’s talk.