Copyright The Philadelphia Inquirer
Antoinene Fullard bought her first house to fix and flip in 2021 for about $40,000. The rowhouse in Germantown was a gut job, and renovations took longer than she’d planned. By the time she sold the property in 2023 for $235,000 and paid investors and the interest on her loans, a project that “could have been very profitable” didn’t really make much money, Fullard said. Her second flip was a fire-damaged rowhouse in South Philadelphia that she fully renovated and put on the market in September. The home is now under contract for $215,000 — not the roughly $280,000 she’d hoped to get. So she’s just about breaking even. But she said she’s happy the buyer is a young Black woman purchasing her first home. “This is the exact reason I’m doing [this],” she said. Fullard has experience in the real estate world, but she’s working in an environment that’s become more difficult for flippers. Costs for properties, construction, and materials have risen. Finding good subcontractors has gotten harder. Borrowing money is more expensive. Ideal properties for flipping aren’t as plentiful. Philadelphia’s housing market has softened, and buyers have more negotiating power. Profit margins have gotten thinner. “We had a very long cycle in Philadelphia of people doing this who were successful,” said Dara Ellis, real estate broker of record at the Philadelphia-based RE/MAX @ Home. Flippers used to create thriving businesses by starting with a few homes and scaling up. “That’s very difficult now,” Ellis said. Home flips make up a fraction of the region’s housing market. Last spring, about 1,400 homes that had been flipped were sold across the Philadelphia metropolitan area, which includes Camden and Wilmington, according to ATTOM, a real estate data company. That’s about 8% of the region’s home sales in the second quarter of the year. Flipping “can be amazing. You can make money doing it,” Ellis said. “But it’s not for everybody.” More renting than flipping Despite the recent downturn, Philadelphia remains a place where investors who want to flip can find opportunities. The city is home to properties that need work that investors can buy for less than $100,000, unlike other major cities. It still has a demand for homes. Property values are rising. And there are an abundance of sturdily built old houses that need extensive repairs or updates. “There’s tons of opportunity” in the Philadelphia region, said Susan Naftulin, managing member at Rehab Financial Group, a Delaware County-based private lending firm that works with investors in 25 states. She estimates that 40% of the lender’s business comes from Southeastern Pennsylvania. “We have a lot of investors who come from other cities to invest in Philadelphia because of its economics.” But Naftulin said that over the firm’s 16 years, “we’ve seen a huge shift” from a majority of borrowers fixing and flipping distressed properties in 2009 to now many more customers fixing properties to rent instead of sell. Bill Lublin, president of the Pennsylvania Association of Realtors and CEO of Century 21 Advantage Gold, based in Philadelphia, has adapted his investment business model over the years as someone who both flips and rents homes. “Twenty years ago, we were doing way more fix-and-flips than we’re doing now,” he said. The real estate market was booming for investors. The city had more foreclosures, which were opportunities for investors; interest rates weren’t bad; home prices weren’t as high; and buyers were plentiful, he said. The last couple of years have been “rough,” Naftulin said. The biggest issue for Rehab Financial Group’s borrowers has been a lack of homes to buy. But in the last couple of months, more customers have been buying and selling as more homes have hit the market. Naftulin said that once interest rates drop more, she expects that more of the company’s loans will be used for flips. The national flipping scene The current market is weeding out some flippers, RE/MAX’s Ellis said. In the past, when the market was flush, investors who were inspired by TV shows or social media but didn’t have the skills or business sense to flip still made a profit despite mistakes. The flipping environment has gotten less forgiving. Before accounting for expenses, returns on investment have been trending down for more than a decade. Flipping expenses usually fall between 20% and 33% of a property’s after-repair value, according to ATTOM. “We’re seeing very low profit margins from home flipping because of the historically high cost of homes,” Rob Barber, CEO at ATTOM, said in a statement. “The initial buy-in for properties that are ideal for flipping, often lower priced homes that may need some work, keeps going up.” Nationally, the median price an investor paid for a home this spring was $259,700 — the highest cost since ATTOM began tracking in 2000. And as home prices rise, flippers on the low end of the market are more likely to have to compete with individual homebuyers who are looking for affordable options, Barber said. The business of flipping Flippers’ businesses vary in size and volume. Some do the renovations themselves, while others hire contractors. In the Philadelphia metro area this spring, flippers paid a median of $200,000 for a home, according to ATTOM. The median flipped sale price was $325,000. But especially in less expensive neighborhoods where homebuyers are looking for affordable options, a flipper can sell a home for $200,000 or less, said Al Perry, broker and owner of Century 21 Advantage Gold and an investor who both flips and rents homes in Philadelphia. Perry said the city has had a reputation as a place where investors can make a lot of money, but he’s seen more people fail to make flipping work. Common mistakes include paying too much for properties, overestimating the sale price of renovated properties, and underestimating costs and the time needed to finish and sell properties. “Every investor has those stories where you thought the market would perform better than it did or the renovation costs got away from you,” Perry said. Flippers need to work quickly because when they borrow money, they tend to use private lenders, which charge high interest rates for short-term loans. Rehab Financial Group’s rates can range from about 11% to 12.75%. Identifying the right opportunities is key. A seller who’s under financial pressure or who can’t do the work the property needs might decide to sell to an investor. Properties sometimes referred to as “grandmom homes” — houses that are well maintained but haven’t been updated in decades and don’t appeal to the typical buyer — can make good opportunities for flippers. Successful flippers know when to pass on a property. “We walk away from a whole lot more than we ever did,” Perry said. Fullard said she has “learned a whole lot” during her first two flips and is currently rehabbing four other homes, one in North Philadelphia and the rest in Germantown, where she’s from. She looks for properties that are eyesores on their blocks and likes seeing them “blossom.” “I’m passionate about the community,” Fullard said. “And it’s always been about, ‘How can I add value by adding a good product for people?’”
