Lately, house-flippers have seemingly risen in numbers due the recent run-up seen in the housing market. The last time such a trend was seen was at peak of the housing bubble.
The increase in house flipping can be validated by the fact that buying and selling real estate has increased by 19% over the last six months. If the figures are stretched back to 2011, this is a significant increase of 74%.
As far as the profit is concerned, the flippers made an average gain of $18,400 on single family homes. This shows that the home sellers were able to get nearly 9% returns on the initial prices. When compared with those in the early half of 2012, these are large scale gains.
Flipping activity has been seen most in Atlanta followed by New York, Phoenix, Detroit and Savannah. 70% of the metro areas show a large amount of flipping activity. In the Atlanta area, nearly 6,000 properties have flipped.
The city of Savannah has consistently been named in the ‘America’s favorite cities’ category and is known for its public parks and outdoor access. The case of Savannah is interesting on the account of its real estate value.
Since the beginning of 2013, the housing market has greatly improved. Many of the flippers in the city are institutional investors. Buyers are motivated by the fact that the value of the property is going to increase in the last quarter.
Jan Brzeski of Arixa Capital Advisors has been open to lending amounts to flippers and as a result, they see real estate deals being closed quickly with consumers. Likewise, Justin Singletary Savannah house rehabber extraordinaire, believes that the buy and hold strategy has shifted to buy and sell. He rightly points out that flipping has made a comeback on the account that inventories are lower than they have been in years.
The rising prices are the key motivation to sell. Not to mention, both institutional and individual investors can target key real estate areas.
A point to consider within the flipping market is the mortgage rates, which are also slowly rising. So, it remains to be seen how hefty the returns can get for flippers. The flipping cycle actually started when institutional investors bought a number of foreclosed homes at low prices and then rehabbed them for sale.
This rehabilitation has possibly led to the recovery of the housing market and allowed traditional investors to climb the flipping bandwagon. While it is good while the profits last, amateur investors need to be aware of three major risk factors.
The risk investors involved with flipping include overpaying for a property, underestimating revenue costs and overestimating the re-sale price. So, if the factors are put into the current market situation, an interesting forecast emerges.
As the home prices have increased since July and there is a possibility that they may continue to do so from now on, the rise in prices would be comparatively lower. This is due to the rising mortgage rates. The current rate stands at 3.9 percent, but is expected to hit the 5 percent market by 2014. Then, also consider the fact that the rising prices would help underwater home owners to come to the positive equity category.
So, based on the risk factors, the flipping community should be careful in the buy and sell strategy. The profit may not lessen, but it would become difficult to quickly turn a profit.