What Makes Investors Choose to Flip or Rent?

Editorial|&utm_term=|Website-Editorial-NAT(Website)|"> Auction.com. The firm 's November Real Estate Investor Activity Report, a nationwide survey of real estate investors bidding on properties offered for auction during the month, shows that investors in areas with higher home prices are more likely to choose flipping over renting.

“Real estate investors appear more likely to flip a property in those regions where home values are higher,” says Rick Sharga, EVP for Auction.com. “Higher prices can translate to a faster and potentially more significant short-term return on investment. The hold-and-rent strategy seems most popular in markets where home prices are lower, allowing investors to charge a more competitive monthly rental rate and still produce reasonable returns over an extended period of time.”

Respondents to Auction.com's survey who indicated that they were making a one-time purchase preferred a hold-to-rent strategy, as did—to a lesser extent—respondents identifying themselves as full-time “real estate investors.” Meanwhile, flipping was favored by the majority of respondents who indicated that they were working on behalf of another investor. Flipping is defined as a situation whereby a home is purchased and subsequently sold again within 12 months.

Auction.com's findings based on responses given at online auctions show that investors bidding online generally tend to hold properties to rent rather than flipping them. This data also suggests that purchasing property to rennet is more prevalent in the Midwest and South, whereas there appears be a higher propensity for flipping among real estate investors in the Northeast. The flip vs. rent split is nearly even in the West, with a very slight preference toward renting.

Conversely, investors bidding at live events appear to be more likely to flip the properties they purchase, but there were very strong regional variances. November survey data collected at live events in states where Auction .com is active revealed that flipping was favored overall, with only Georgia, Tennessee and Texas bucking the trend. Meanwhile, respondents at live events in the Western states such as California, Arizona and Nevada showed an overwhelming preference toward flipping.

Flipping was also the more popular strategy among investors purchasing multiple properties per year—particularly institutional investors (those indicating that they purchase 50 or more properties per year). This was true for both online auctions and live events.

While flipping seems to be getting a bit quicker for investors than in the past, its prevalence is declining. As GlobeSt.com reported in November, the amount of time it takes to flip a home is decreasing, according to a report from RealtyTrac. The firm says flips completed in the third quarter took an average of 185 days to complete, down slightly from 187 days in the previous quarter, but up from an average of 133 days for flips completed in the third quarter of 2013.

But, as GlobeSt.com reported earlier, 26,947 single-family homes were flipped nationwide in the third quarter of this year, representing 4% of US single-family home sales, down from 4.6% in the second quarter and down from 5.6% in the third quarter of 2013 to the lowest level since the second quarter of 2009. Still, the report showed, average profits from flipping are increasing.