House flipping makes a comeback
Forget the carnage of the last few years. The allure of the quick buck endures as home flipping makes gains in hot real-estate markets.
This post comes from Marilyn Lewis of MSN Money.
Remember home flippers? How could anyone forget those villains of the housing market crash?
A Santa Rose Press Democrat blogger (tongue slightly in cheek) recalls them as "predatory fish prowling the turbulent waters of the real-estate market, feeding off of distressed properties and swimming away with quick profits."
Well, flipping is back. Investors and even some amateurs are venturing in, snatching up ruined, cheap foreclosures in the hope of making profits on rehabbing and selling or renting distressed homes.
RealtyTrac, in an instructional webinar on flipping (more on that in a minute), defines flipping as "buying a home … usually at (a) discounted price, rehabbing it to sell at full market value, and reselling that property -- all within 90 days and ideally for a profit."
Flipping rises again
"When we see mold in the basement, we just say cha-ching," a New Jersey investor tells CNNMoney in this video. She shows off renovations to a home she purchased for $180,000, saying she plans to list it for $450,000.
One in four homes that sold are actually bought by investors. Part of the reason is because of the millions of foreclosures on the market. With so many empty homes out there it's easier to find a good deal.
RealtyTrac publishes a database of bank-owned and foreclosure properties. It says that about 1,300 people -- 47% of them classified themselves as "new investors" and 13% claimed to be "experienced investors" -- recently signed up for its Foreclosure Flipping 101 webinar.
In a slide show from the webinar, RealtyTrac shares a few nuggets about flipping: In the first six months of 2012, there were 99,567 property flips, an increase of 25% from 2011, and an increase of 27% from 2010.
The average gross profit of these transactions was $29,342. But wait. That's surprisingly little, considering it doesn't take into account the costs of rehabbing. The net profit could be much lower.
The biggest profits per flip were in New York City, with nearly $120,000 profit per transaction (again, excluding costs). The average turnaround time was 106 days.
Flipping is concentrated in states with lots of foreclosures. The first half of this year saw 25,970 transactions in California. Next (in order): Florida, Arizona, Nevada, Georgia, Colorado, Ohio, Michigan, Tennessee and North Carolina.
A list of top markets for flipping was led -- by far -- by Phoenix, with roughly 9,000 transactions. With far fewer transactions, Las Vegas, Los Angeles, Miami, Riverside, Calif., and Atlanta were other national flipping leaders.
Hogging the market
In Los Angeles, currently a hotbed for flipping, flippers are going high style. The cutting edge of gentrification is what LA Weekly's architecture blog calls "the hipster flip."
"Not to be confused with a regular ol' flip job, a hipster flip is the kind of structure that, through its incorporation of classic architecture and modern design elements, seems custom-built for a particular type of homebuyer who, say, listens to indie music, belongs to a CSA and has some sort of liberal arts degree."
Aggressive flippers are dominating housing markets in many cities. That puts first-time homebuyers at a competitive disadvantage. USA Today says that "instead of having their pick of homes to buy in some markets, they're losing houses to cash buyers and bidders with bigger down payments, or they're facing bidding wars spurred by shrinking numbers of homes for sale." (Post continues below video.)
The competition is fiercest in lower-end markets, the article says:
Cash deals close fastest, and they don't involve an appraisal, which lenders require before they make loans. Sellers like cash offers because there's less risk that they'll fall through, so they most often win, says Phoenix-area Realtor Keith Krone.
If you're serious
Much of the run-up in housing prices during the bubble has been blamed on flipping. "Home prices surged more than $3 trillion a year in the run-up to the crash," says U.S. News & World Report.
Research by the Federal Reserve Bank of New York last year said flippers drove up prices and then defaulted in droves, causing home values to sink like a rock.
The damage was catastrophic: $7.38 trillion of Americans' wealth vanished in the ensuing real-estate bust, MarketWatch says.
Even though we've recently seen the carnage when amateurs and dreamers get in over their heads, the allure of the quick buck endures. Spike TV renewed "Flip Men," a reality show about two home flippers, for a second season. Episode titles like "The Stench," "Man's Best Friend? A Dumpster" and "Bloody Crime Scene" give you an idea of the stomach required for this job.
Flipping homes may not be rocket science but, in this interview, the "Flip Men" stars describe a process that takes not just a tough stomach but also a sharp brain and some serious homework.
To be good at flipping, you'll have to learn how to do lien searches and title searches, get comfortable at real-estate auctions, and develop expertise on your neighborhood, your city, the asking and selling prices and how much time properties are taking to sell.
If you're serious, here are sources for your education:
- Flip Men's Pro Pointers blog
- "Homebuying secrets to steal from flippers," on MSN Real Estate
- RealtyTrac's Foreclosure Flipping 101 webinar
More from MSN Money:
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