In 2016, John Gonska bought a bank-owned house in Clearwater for $410,000. With vaulted ceilings and a stunning view over the water near the Bayside Bridge, the pink three-story house had potential, though it needed updating and a top-to-bottom paint job.
Less than a year later, with wife Deb as the listing agent, Gonska put the house back on the market. Boasting a new kitchen, a new roof and marble and bamboo flooring, it went under contract in a week and sold for $595,000. Gonska reaped a $185,000 gross profit but decided to quit while he was ahead.
"We did about 10 flips,'' he said, "and this was the last one. There are still opportunities but not a lot of bargains. Too many people are watching HGTV shows and paying too much for flips.''
Of Florida’s 67 counties, those in the Tampa Bay area — Pinellas, Hillsborough, Pasco and Hernando — still rank among the top 10 in flips as a percentage of all sales. In the three months ended in September, almost 9 percent of homes sold in the bay area were flips, defined as a property that changed owners at least twice in a 12-month period in an arm’s length sale.
But according to CoreLogic, a real estate data company, the average gross profit on a bay area flip dropped 15 percent compared to the same period a year earlier. Steadily rising prices and a chronically tight supply of homes for sale create a challenging environment for flippers.
"It’s harder than ever to make money,'' said James Nagy of Palm Island Realty. "For investors, if they do five flips, they hope to make money on two, break even on two and the other they might lose money on.''
Nagy works closely with Bay to Gulf Holdings, a Tampa-based company known in real estate circles as a "wholesaler.'' It typically buys run-down properties, does minor work, then sells them for $20,000 or $30,000 more to flippers who undertake a full or partial renovation.
A recent example: Late last year, Bay to Gulf paid $92,000 for a tired-looking, two-bedroom, one-bathroom bungalow on Haines Road in St. Petersburg. In March, the company sold the house to an investor for $112,000. She redid the kitchen, replaced the flooring, updated the plumbing, electrical and heating/airconditioning systems, and dramatically improved the curb appeal.
This fall, the house sold for $200,000, a 78 percent gross profit or a true profit of about 45 percent after renovations, real estate commission and other costs were factored in.
The investor did better than many other flippers in the Tampa Bay area. Over the past 12 months, CoreLogic found, flippers paid a median of $140,500 for a house — much more than she paid — but sold for the same $200,000 price as she did. That worked out to a gross profit of 42 percent.
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Flipping hit its peak in the bay area in 2005 when home prices seemed to have nowhere to go but up. After the 2008 housing crash, investors with cash snapped up thousand of foreclosures and held on to them until the market began to improve in early 2013. That was the year HGTV introduced Flip or Flop, a wildly popular show featuring a telegenic, young California couple (now split) who make a living flipping houses.
In the bay area, a ready supply of homes, many in poor repair, made it possible to buy a house for relatively little, fix it up and sell it. But as foreclosures dried up, the supply shrank and prices rose. That made it harder to find places that could be flipped for a hefty profit.
In 2015, there were 4,561 flips. In the 12 months ended in September, there were 3,543.
While cash continues to be king, nearly 30 percent of Tampa Bay flips are now financed. Some flippers have turned to South Carolina-based Lima One Capital, which entered the bay area market in 2015 with 13-month "FixNFlip'' loans to buy and rehab houses for resale.
Since then, records, show Lima One has made close to 200 loans in Hillsborough and Pinellas. The typical borrower is male, often with a primary job, who sees flipping as a way to make money for retirement or build wealth. The methods, though, are changing.
"Tampa Bay is definitely starting to see some flattening out from an inventory perspective so it’s a challenge for some of our investors to find the right deals at the right price,'' said Dana Wasson, Lima One’s director of national sales. With the return on investment not as "plump and full as they might like,'' she said, a growing number of investors are foregoing rehabs and instead building new houses to either sell or rent out.
“In the last six to eight months, we’ve seen more transition to build-to-sell programs simply because the competition (for existing homes) is so great,'' she said.
As a result, Lima One now offers construction loans and even 30-year mortgages.
Other Tampa Bay area flippers have borrowed from LendingHome of San Francisco. Among the nearly 260 loans the company has made in Hillsborough, one was used to remodel a dated bank-owned house with boarded-up windows and a pool area blackened with mold.
The investors bought it for $145,000 a year ago and sold it in July for $250,000.
In Pinellas, one flipper has taken out 11 loans from LendingHome Funding for fix-and-flips like this:
• A three-bedroom, two-bath house in Clearwater bought in December 2017 for $191,000. It sold in May 2018 for $285,000 after four days on the market.
• A three-bedroom, two-bath house in St. Petersburg’s North Kenwood area bought in February 2018 for $109,000. It sold in March for $208,000 after 223 days on the market.
• A two-bedroom, one-bath house in Largo bought in July 2018 for $88,500. It sold in January for $160,000 after 51 days on the market.
All three houses were what some call "lipstick flips'' — modest places dolled up with pale gray walls, stainless steel appliances, granite countertops and dark flooring. (Seen in flipped homes everywhere, gray walls have been among the "most overused decorating trends'' of recent years, some design websites have proclaimed.)
As property and renovation costs rise, "the days of doing a full rehab are over unless it’s in a special area like the Old Northeast or Seminole Heights,'' Nagy of Palm Island Realty says, referring to sought-after neighborhoods in St. Petersburg and Tampa.
Very few bay area borrowers have defaulted on flip-and-fix loans, records show. Wasson attributes Lima One’s low default rate to careful underwriting and keeping in close touch with borrowers, easy to do in since the company services its own loans.
Another factor: There’s still a high demand for good-looking flips in the $200,000 to $300,000 range.
"Once the properties get on the market,'' Wasson said, "they go quickly.''
Facts about flipping
10 Tampa Bay ZIPs with the highest rate of flips in the third quarter of 2019:
- 33610 ― Tampa, 18.5%
- 33778 — Largo, 17.3%
- 33605 — Tampa, 17.2%
- 33755 — Clearwater, 16.9%
- 33781 — Pinellas Park, 14.7%
- 33712 — St. Petersburg, 14.5%
- 34668 — Port Richey, 14.3%
- 33713 — St. Petersburg, 14.3%
- 33510 — Brandon, 14.2%
- 33782 — Pinellas Park, 14.2%
Most flips in third quarter 2019: 34668, Port Richey — 50
Highest median purchase price: 33626, Tampa (Westchase) — $297,100
Lowest median purchase price: 33605, Tampa (Ybor City) — $55,000
Highest flip price: 33629, Tampa (Palma Ceia) — $413,500
Highest percentage gross return on investment: 33711, St. Petersburg — 99.2%
Highest gross profit: 33611, Tampa — $130,000
Fewest days to flip: 34684, Palm Harbor — 111 days
Most days to flip: 35698, Dunedin — 248 days