Investors Continue to Favor Flipping Over Renting by Narrowing Margin

Real estate investors still prefer flipping as a strategy over renting, albeit by a narrowing margin, according Auction.com‘s April 2015 Real Estate Investor Activity Report released on Wednesday.

Whereas the data from Q1 showed that flipping was gaining momentum, the April monthly survey showed that the gap between the preference for renting and flipping was closing, according to Auction.com. The survey was collected from investors who bid on properties both online and at live events nationwide during April 2015.

Overall investor intent in April’s survey showed that slightly more than half (50.4 percent) of investors preferred flipping as a strategy, while 48.3 percent of investors said they intended to employ a hold-to-rent strategy. This data compared with 53.5 percent and 44.8 percent, respectively, in Q1.

“Most of the country and most investor segments performed in a manner very consistent with what we’ve seen over the past year, but investment strategies in Texas appear to have shifted pretty dramatically,” Auction.com EVP Rick Sharga said. “Investors probably realize that without oil fueling Texas’ growth, it’s unlikely that home prices will continue to appreciate rapidly, and it’s very likely that home purchase demand will weaken. Given those considerations, a buy-and-hold strategy may suddenly be much more attractive.”

April’s survey showed the gap was also closing between renting and flipping among real estate investors (52.4 percent said they preferred flipping, compared to 55 percent in Q1) while percentage of investors working on behalf of another investor who preferred flipping held steady from Q1 to April at 66.3 percent.  Nearly three-quarters of investors making a one-time purchase said they intended to rent (74.3 percent in April, up from 66.9 percent in Q1).

According to April’s survey, investors who bid on properties at live auctions were more likely to flip the properties they purchased – in fact, a majority of survey respondents in eight of nine states where Auction.com conducted live events indicated a preference for flipping over renting. The outlier in the group was Texas, where 52.4 percent of respondents preferred renting compared to 47.6 percent who preferred renting. The majority of investors in Arizona, California, Georgia, Idaho, North Carolina, Nevada, Tennessee, and Washington all preferred flipping, with North Carolina gaining the highest percentage at 78.6. The nationwide average for investors who intended to flip was 58.3 percent, compared to 41.7 percent who intended to rent.

“It will be interesting to see if this trend spreads to other states where energy-related jobs have generated economic gains, or whether we’ll begin to see a boom in home purchases stimulated by these lower energy prices across the country,” Sharga said.

Investors who purchased properties online, however, were more likely to rent, according to the survey. Nationwide, 54.5 percent of investors who bought properties via online auctions said they preferred renting compared to 43 percent who said they intended to flip. Renting was the preferred strategy in three of the four geographic regions – the majority of investors in the Midwest, South, and Northeast said they intended to rent, while flipping beat out renting by a slim margin (49.6 percent compared to 48.7 percent) in the West.

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