Those who spent more money to improve the homes they flipped saw a greater profitu2014up to a point.<@SM>While unadjusted ROI on home flipping nationwide varies greatly, the spread between average purchase price and average flipped price increased greatly from a year ago. ***Chart courtesy of RealtyTrac.

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IRVINE, CA—Higher single-family rehab expenditures correspond with better ROI, according to a report from RealtyTrac. The firm reports that BuildZoom, a big-data company that uses building-permit and licensure information to help consumers hire contractors, found that increasing expenditures result in increasing ROI up to the point at which the expenditure represents around 23% of the original purchase price; after that, further expenditures result in diminishing returns, the report says.

As GlobeSt.com reported last week, the incidence of home flipping nationwide is decreasing at the same time as average gross returns are rising. According to RealtyTrac’s report, 3.7% of all US single-family home sales in Q1 were flips—defined as home that were purchased and subsequently sold again within six months—which is down from 4.1% in the fourth quarter of 2013 and down from 6.5% in the first quarter of 2013.

BuildZoom performed an in-depth analysis with RealtyTrac to understand how home-improvement expenditures can impact real estate property values. RealtyTrac home-flipping data was matched with corresponding building-permit records, from January 2011 to March 2014 in seven major US cities: San Francisco; Denver; Atlanta; Scottsdale, AZ; Sacramento; Orlando; and St. Louis. Analysis was done using a blended set and on an individual basis.

“The data clearly shows what a lot of shrewd investors have known for years—that if executed properly, improvement expenditures will yield a positive ROI,” says Jiyan Wei, co-founder of BuildZoom. “The data clearly shows what a lot of shrewd investors have known for years—this if executed properly, improvement expenditures will yield a positive ROI.”

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