House Flipping Makes a Comeback as Home Prices Rise: WSJ

The Wall Street Journal reports that house flipping has reached levels not seen since 2007—just before the Global Economic Meltdown. This upswing in popularity has attracted the attention of big banks like Wells Fargo and JP Morgan Chase, who are now extending lines of credit to lenders that specialize in underwriting flips.

About a third of the deals in the third quarter were financed with debt, a percentage not seen in eight years.

Our DARE funds also underwrite flipping projects, but the similarity ends there.

Hard-money lenders may change the source of their capital but they won’t abandon their business model or underwriting guidelines—and they shouldn’t. It’s what they do best.

DARE works with HMLs to offer 100% financing to approved flippers on selected projects, so when more capital flows their way more business flows to DARE. We underwrite just the strongest projects from the best flippers, and actively oversee the project budget and timeline.

DARE invests heavily in risk mitigation practices such as those, but of course all investments bear risk—and flipping is especially risky.

The article is excerpted below so you can draw your own conclusions. Here’s a link (subscription required).

House Flipping Makes a Comeback as Home Prices Rise

House flipping, a potent symbol of the real-estate market’s excess in the run-up to the financial crisis, is once again becoming hot, fueled by a combination of skyrocketing home prices, venture-backed startups and Wall Street cash.

After nearly being felled by real-estate forays almost a decade ago, a number of banks are now arranging financing vehicles for house flippers, who aim to make a profit by buying and selling homes in a matter of months. The sector is small—participants say roughly several hundred million dollars in financing deals have been made in recent months—but is expected to keep growing.

In recent months, big banks, including Wells Fargo & Co., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. have started extending credit lines to companies that specialize in lending to home flippers. Earlier this month, J.P. Morgan agreed to lend an estimated $60 million to 5 Arch Funding, an Irvine, Calif., company that offers financing to flippers, according to people familiar with the deal.

The number of investors who flipped a house in the first nine months of 2016 reached the highest level since 2007. About a third of the deals in the third quarter were financed with debt, a percentage not seen in eight years.

The market for house-flipping loans in the U.S. is expected to reach about $48 billion in total sales volume this year, the highest since 2006, according to ATTOM.

That’s in part because home prices across the country are rising, reaching levels not seen since before the 2008 financial crisis. Housing also is in relatively short supply. Meanwhile, low interest rates and a surge in demand for homes from institutional buyers have also benefited house flippers.

About Bruce

Bruce is one of the founders of JB Fund Services, and holds real estate investments in several states.
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