According to a recent Trulia report, the ability to earn a profit by flipping homes remains a viable option for those interested in investing in real estate.
During the last economic downturn, many became familiar with the concept of flipping houses—something largely unknown to most previously. In markets across the country, the ability to buy at rock-bottom prices, update a home and then sell it as the market began to rebound attracted novice buyers who wanted to join the experienced individuals investing in real estate.
As the market has continued to improve and home prices have increased however, existing and potential investors are pondering whether the ability to earn profits by flipping properties still exists. So much so, in fact, that Trulia recently queried “Are We Past the Flipping Point?”
In his post, housing economist Ralph McLaughlin notes that flipping generally requires price growth. He notes studies demonstrate that over the last 12 months, metropolitan areas with above-average home price games also had the highest property flipping activity. These include San Jose, San Francisco, Knoxville and Fort Lauderdale, with year-over-year price changes ranging from a low of 3.2% to 14.4%.
Nearly all our top-ten flipper metros experienced above-median price gains in 2014 and most posted price growth near or above double digits. Still, we aren’t anywhere near the levels of frenzied flipping seen during the housing bubble, despite similar year-over-year price gains in many metros. All of the metros that registered year-over-year price growth above the critical 10% point had flipping activity around 3% to 4%. That’s on par with average flipping at that price growth range between 2000 and 2014—in other words, flipping is occurring at a historically normal rate.”
In an analysis of the Trulia report, Huffington Post contributor and New York Times best-selling author Dean Graziosi agrees flipping remains alive and well in the U.S. Focusing on the opportunities which can be realized by rehabbing distressed properties (those not included in the Trulia study), he gives additional, valuable insight into successful strategies specific to “fix and flip” real estate investors:
- A purchase well below market value, even lower than it’s current value in current rough condition. Lock in a profit even with a short flip without the necessary work. This is a negotiation skill factor.
- A project system that’s well-refined and the right material sources and contractors who consistently perform on time and on budget.
- If funding is necessary, its cost is factored into the project and profit markup applied.
- Rehab work that can be performed at wholesale level with a markup that adds profit to the project.
- A buyer ready to buy at a price the flipper has factored for the desired profit margin.
Thinking about investing in real estate? Have questions or comments? We’d love to hear from you.