A nationwide survey conducted by Auction.com, a leading online real estate marketplace, showed a continuation in January of a trend seen in the fourth quarter of 2014—that of investors' preference to flip houses rather than rent them out.
Even as the demand for rental housing has increased in most markets, investors continue to prefer to flip houses due to a recent combination of price appreciation and decreased inventory, according to Auction.com. About 50.2 percent of investors surveyed in January said they preferred to flip the homes they purchased, while 47.5 percent said they prefer a hold-to-rent strategy (2.2 percent surveyed said they were undecided). These percentages were little changed from Q4.
"Considering recent reports that have suggested a shortage of rental units in some metropolitan areas, we'd expect to see more investors starting to move toward a buy-and-hold strategy to address this market opportunity," Auction.com EVP Rick Sharga said. "We know anecdotally that some flippers purchase homes specifically to sell them to other investors who repurpose the properties as rental units. But, it will be interesting to see if more investors move away from flipping and towards rental strategies over the next few months if demand for rental housing continues to rise."
Though the survey found that more investors preferred flipping over renting overall in January, the results varied according to the investor profile and the type of auction (live versus online). Among investors making a one-time purchase, 67.5 percent preferred a hold-to-rent strategy compared to 29.1 percent who said they preferred to flip. The majority of real estate investors preferred flipping over renting (51.7 percent to 46.3 percent), while investors working on behalf of another investor also showed a propensity toward flipping over renting out the properties they purchased (60.2 percent compared to 37.6 percent).
Investors who purchased their properties through live auctions appeared to show a preference toward flipping in January. Flipping was the preferred strategy over renting in all but two of the 10 states where Auction.com conducted live events during the month: Georgia and Missouri. The state with the highest percentage of investors who purchased properties at live auctions and preferred flipping was Arizona, with 74.3 percent compared to 20 percent who said they would rent. Overall, 56.2 percent of investors who purchased properties at live auctions in January said they preferred to flip, compared to 41 percent who said they intended to rent the properties out.
Meanwhile, 54.9 percent of investors surveyed in January who purchased properties through online auctions said they intended to rent, compared to 43.4 percent who said they preferred flipping.