The Latest on Flipping Houses
October 23, 2013 
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Some people think the flipping houses bubble burst along with the rest of the real estate bubble in 2008, but real estate data shows the practice is on the upswing again. This time in the news are the million-dollar homes. Although we here at Part-Time REI believe there is always a market for flipping houses it has definitely made a comeback in the higher priced properties as more investors are making a profits in that realm. This is attest to the many celebrities that have decided to try their hand in flipping and made recent news as well.
MarketWatch reports :
For the market as a whole, flips of single family homes fell 13% in the third quarter, according to new research from RealtyTrac, with investors earning a gross profit of nearly $55,000 on each property. But at the higher end of the market, homes seem to flip as quickly as a griddle full of hamburgers. Flipping increased 34% among homes worth $750,000 and over, 42% among $1 to $2 million houses, and 350% for properties worth between $2 and $5 million.
Flipping tends to be most common in cities with a large supply of expensive homes. (To qualify as a flip, a home must be purchased and subsequently sold again within six months.) In fact, more than three-quarters of all high-end flipping took place in five markets: The New York metro area and Los Angeles, San Francisco, San Jose and San Diego.
What’s behind these quick turnarounds? “Flipping happens when prices are rising rapidly even if price levels are low,” says Jed Kolko, chief economist for real-estate firm Trulia.
It’s possible to double the value of a home, says Jeff Salgado, a San Francisco-based realtor. Investors could buy a dilapidated home for $1.2 million, invest $600,000 and sell it for $2.4 million, he says. “Our buying community is driven by the biotech and high tech sectors. These people are brilliant at what they do, but a good portion of them don’t know the difference between a screwdriver and a hammer.”
The Challenges in This Market
Rising home prices and fewer foreclosures has made flipping in the lower end markets less profitable, said Daren Blomquist, vice president at RealtyTrac. Investors are facing some of the same problems regular home buyers are with a shortage of homes for sale and competition from other investors.
“The lower- to middle-range homes are preferable to flippers because they require less [renovation] work,” Blomquist said. “But there’s fewer of those properties available.”
The rise in mortgage rates has started to cause a little hesitancy with some buyers and made it more difficult for real estate investors to guarantee a quick sale or the profit they are looking for. The 30-year fixed rate reached 4.28 percent last week, according to mortgage financing company Freddie Mac.
But don’t despair. There are still plenty of markets out there that are ripe for the picking. The key is to educate yourself on what a good deal could potentially be. Know your market. Do your research. Use a system that will empower you to estimate the total repair cost so that you can easily calculate your risk vs reward and you will soon see the positive results.
To learn more about Part-Time REI visit us at http://part-timerei.com/
Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.
Erik Hitzelberger – who has written 194 posts on Part Time REI.
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