Property Flipping Gaining Momentum in 2012
With home prices still near historic lows and rental rates on the rise, several investors who have sizable cash are now entering the flipping market to make a profit on the influx of distressed assets that are available throughout the country.
According to RealtyTrac, nearly 100,000 properties have been flipped nationwide in the first half of 2012. This is a substantial increase over the previous two years by 25% and 27%, respectively.
Property flipping is the process of acquiring a home usually at a discounted rate, improving this property through rehab and repairs to be able to sell it at full market value for a profit.
Typically, the time frame flippers look to resell foreclosed or bank-owned homes is within 90 days, said Daren Blomquist, vice president of RealtyTrac during a webinar.
Home flipping, not surprisingly, is flourishing in markets hard hit by the foreclosure crisis, such as Phoenix, Las Vegas, Los Angeles, Miami and Atlanta. Furthermore, smaller cities that have not been impacted with high foreclosures like Pittsburgh, Baton Rouge, La., Madison, Wis., and Asheville, N.C., also are seeing a surplus of property flips, RealtyTrac said.
“Flippers are helping to stabilize home values and provide a shot in the arm to local economies,” RealtyTrac said in its latest foreclosure news report. “They’re fixing up beat-up foreclosures, hiring contractors, painters, carpenters, landscapers, designers, home stagers and putting Realtors back to work. They’re also luring first-time homebuyers back into the market, which is essential for a housing recovery.”
Blomquist said starter type homes that are between 1,000 and 2,000 square feet are being flipped among investors most commonly at a rate of 64%. The second highest, at 17%, are properties between 2,000 and 3,000 square feet, while 14% of homes less than 1,000 square feet are being flipped.
The state with the most flips through the first half of 2012 is California with approximately 26,000. Rounding out the top five states where investors have flipped the highest number of homes is Florida with 14,190; Arizona had 11,023; Nevada was 6,359; and Georgia with 5,116.
Investors were making just over $29,342 in gross profit per property flip, not including rehab and carrying costs, the Irvine, Calif.-based analytic firm determined. Meanwhile, the average time to flip nationwide was 106 days.
Gina Osten, a Miami-based flipper who now works in the Phoenix foreclosure market, has flipped 30 properties over the last three years in this region. Due to a combination of fewer foreclosures coming onto the Phoenix market and investor demand for bank-owned homes, bidding wars have developed for these properties, making prices climb, she said.
Osten added that she used to buy foreclosure flips in Phoenix for $40,000 to $50,000, but now price points have gone up to $70,000 to $80,000.
“My acquisition costs have gone up, but my spreads have stayed the same. As long as there’s cash in the market my model works,” she said. “Once the cash buyers leave, my model doesn’t work. I can’t flip with loans because of the potential problems with properties appraising.”
Meanwhile, even though it sounds easy to be able to flip a property and make a profit, experts say this is not the case for those in this business.
Mike Baird and Doug Clark, the stars of Spike TV’s reality series “Flip Men” who have flipped approximately 1,000 foreclosures and other properties in Salt Lake City, both said becoming an expert about a specific market is a main key in order to become a successful property flipper.
“Advice I would give prospective property flippers would be to know their area, understand value for properties in this market and have information at their fingertips,” Clark said during the webinar. “What are the common lulls and trends of price per square footage in this area is something that is really important to understand.”
Additionally, potential flippers need to have patience because they are not going to “find a sale immediately,” Clark mentioned, who looks at between 50 and 100 properties every morning before deciding which three to make a bid on.
“People who don’t understand metrics have to realize not to get frustrated with your first offer or deal that did not work out,” he said.
Baird noted that in real estate, location is usually the main determination when it comes to buying a property. However, in terms of property flipping, price is the top factor to pay attention to.
“The best market to flip in is one that you believe you know the most,” Baird said. “Knowing every house on the market that is sold or vacant and how much that property is unloading for. How much it is going to take for a rehab and what can I sell that property for? These are all immediate thoughts that a flipper should be thinking about to become an expert in a market.”