Michael Sadeghpour was just 18 when he did his first flip.
Using money saved from a job and borrowed from his grandmother, he bought a foreclosed condo in north Pinellas County for $67,000. He did some inexpensive renovations and flipped it for $125,000
That was in 2014. Sadeghpour doubts he’ll ever do as well again on a flip.
Now foreclosures are very rare," he said. "And these new foreclosures that do come to market are not the same — these are fixed up properties and even if they’re not fixed up they’re asking market value."
Tampa Bay has seen two booms in house flipping — one in the mid 2000s, when prices appeared on a steadily upward trajectory and again from 2011 to 2014, when the market was flooded with cheap foreclosures. But as home prices return to pre-crash levels, it’s getting harder to make money on a flip, both locally and nationally.
"Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties… and increasing competition from fair-weather home flippers often willing to operate on thinner margins," said Daren Blomquist, senior vice president at ATTOM Data Solutions.
In the three months ended in September, flippers nationwide made an average gross profit of 47.7 percent, the lowest in two years. Tampa Bay flippers fared better with a gross profit of 54.5 percent but that was down from 66.5 percent in the same period a year ago.
(A flip is defined as a home bought and resold in an arm’s length transaction in a 12-month period. Gross profit doesn’t include renovation or carrying costs.)
Other startling figures:
• In the third quarter of 2005 — Tampa Bay’s all-time peak period for flipping — 3,533 homes were flipped. In the third quarter of this year, there were just 1,431 flips.
• A year ago, flips sold in a median of 172 days. This year, it took 182 days.
• Of the more than 5,000 houses currently for sale in Hillsborough and Pinellas counties, fewer than 100 are bank-owned foreclosures.
"There are still a lot of people looking for them but with the inventory being so low, they are few and far between," said Bruce Harris, a Pinellas Realtor. "Instead of the lower-end flipper trying to find something dirt cheap and putting a little in it, now it’s more the quality flip, somebody buying for $200,000 and selling for $300,000."
The dearth of foreclosures has forced Sadeghpour to change strategies.
When he bought the condo for $67,000 three years ago, "the lower end of the market especially was very, very hot," he said. "It was all cash buyers and a lot of foreclosures that I could acquire for an attractive basis."
These days, lenders are more likely to spruce up their repossessed properties so they can sell them at a higher price. "That has made it a little harder for speculators like me to buy properties that are undervalued," Sadeghpour said.
As a result, Sadeghpour now looks for non- foreclosures on which he can get a good deal, either because they’re run down or because they’re in a higher price bracket in which homes don’t sell as quickly. As prices climbed, he also began financing his purchases — in the third quarter, 23 percent of Tampa Bay flippers borrowed for their flips.
So far, Sadeghpour has invested in eight properties including a 5,000- square- foot foreclosure in the Innisbrook golf resort that he and a developer teamed up to buy for $730,000 last year. After renovations, they put it back on the market for $1.250 million but rented it out when it failed to get any "buyer traction," he said.
"Of course, I’d love to sell it but if you acquire properties and leverage them correctly, it can leave you with enough cash to do other projects and leave you with this nice asset on your books that looks good when you go to other lenders," Sadeghpour said. "You can keep it as it appreciates — it’s a win-win."
Contact Susan Taylor Martin at [email protected] or (727) 893-8642. Follow @susanskate