An Unexpected House Flipping Hot Spot Emerges
June 10, 2020
Some investors are seeing an opportunity to grow their real estate portfolios during the pandemic, betting on an increasing desire among Americans to live in the suburbs. Cleveland has emerged as one surprising house flipping mecca, The Wall Street Journal reports.
Investors are banking on growth in rentals in spacious suburban abodes. The Greater Cleveland area has emerged as one of the most profitable places nationwide to flip homes and rentals, The Wall Street Journal reports. The average fix-and-flip project tends to sell for double the amount it costs. Add to that: The rental income collected from the property is then often at least 1% of the purchase price.
Kathy Fettke, a property investment adviser from California, told The Wall Street Journal that she likes to show out-of-state buyers the iconic images of homes in the northeastern Ohio city. “When we take people from California, they see these beautiful homes and beautiful tree-lined streets; it’s like stepping back in time to what America was in the ‘50s,” Fettke says.
Home prices tend to be lower as well. The median home price in the metro Cleveland area is $160,700—well below the national median price of $274,600. Plus, many homes can still be found for under $100,000—a particular sweet spot for house flippers.
The median flip in Akron, Ohio—part of the metro area—cost $60,000 last year and then sold for $124,000, according to ATTOM Data Solutions. “Your basic three-bedroom, two-bathroom house doesn’t rent for that [much less] in Ohio than it does in California,” Fettke says. It may rent for anywhere from $1,100 to more than $2,500, but the house costs 90% less to purchase.
Kelly Stumphauzer has a house-flipping company called Prosper Cleveland, which sold 200 renovated rental houses last year to investors. Currently, her firm is currently working on about 60 house flip projects. Stumphauzer also told the WSJ she has a waiting list of investors who already want them.
“We cannot turn them out fast enough,” she says.
Read more: Most Borrowers in Forbearance Have Equity
During the Great Recession, investors gobbled up foreclosures at rock-bottom prices. But some housing analysts are skeptical whether a flood of foreclosures will occur this time around.
Still, national home rental firms are looking to expand in response to the pandemic. For example, rental giant American Homes 4 Rent announced a $650 million venture with J.P. Morgan Asset Management to construct rental houses in the South and West. They’re betting that millennials will want to spread out to suburban living as they start families and in response to the pandemic.
Nationwide, about 246,000 homes were flipped last year—the highest since 2006, according to ATTOM Data Solutions, which defines a flip as a sale within a year of the home’s purchase. Housing flip data isn’t available yet for this year. But home sales have reportedly increased since shelter-in-place restrictions have eased across the country.
“Cleveland Is a House-Flipping Hot Spot, and COVID Adds Fuel,” The Wall Street Journal (June 8, 2020) [Log-in required.]
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Updated: October 05, 2022