While house flipping has become increasingly popular in Baton Rouge, flippers say an oversaturated local market is preventing them from raking in the same profit margins as others nationally.
House flipping is back to nearly the same level it was around the 2006 peak of the housing boom, The Wall Street Journal reports. What’s different this time, however, is that flippers across the country are seeing much larger profit margins today (a median of 23% in the last quarter of 2018) than they did in 2006 (a median of 9% in the first quarter).
But Baton Rouge’s oversaturated market, which is reducing selling prices and increasing days on the market, is tightening the margins on house flips, says Daren Dakmak, a contractor who is flipping one house in Broadmoor and another in the Old Goodwood area. That isn’t even counting fees paid to real estate agents to market and stage the renovated property, which Dakmak says only further narrows margins.
“I don’t personally see a big gain in profit margins,” says Dakmak, expecting to turn a 10%-15% profit on the Broadmoor house and a 20% profit on the Goodwood house. “There’s so much competition from builders and do-it-yourself flippers that everything is going to plateau.”
Others cast doubt Baton Rouge has the market for its residents to demand the growing number of flipped houses. Among those skeptical is Pinnacle Homes and Properties CEO Jae Alexander, who flips homes in Zachary, Prairieville and select areas of Baton Rouge.
Though he’s used to flipping several dozen houses a year, Alexander says he’s shifted his business model to focus more on buying properties and selling them to other investors to flip as the trade becomes more professionalized. Corporate sellers made up more than 40% of flippers in the fourth quarter of 2018, according to a recent CoreLogic study, nearly three times the share of the market they had during the last boom.
“I might only make a couple thousand on the deal,” he says, “But I fill a gap because [the investors] can’t find deals, and I don’t have to spend as much time or money on the property.”
Check out The Wall Street Journal story for more about the national house-flipping market.