Flipping houses: a booming business once again?

Flipping, or the act of buying houses at discounted prices and selling it quickly in a few weeks’ time, is said to be on the rise.

It earned a bad reputation during the housing boom thanks to speculators who bought and sold millions of homes in search of easy profits. But the practice is gaining popularity again as the nation’s real estate market shows signs of life. The number of flips rose 25 percent during the first half of 2012 from the same period a year earlier, according to research firm RealtyTrac, and the gross profit on each property averaged $29,342.

RealtyTrac Vice President Daren Blomquist said the resurgence in flipping offers another indication that, in many parts of the country, housing prices have finally stopped falling.
“There are flippers in any market, but a market where home prices are appreciating is much more forgiving for flippers than a market where prices are depreciating,” Blomquist said. “We have turned that corner in a lot of places in the last six months, so that’s going to attract flippers.”
Areas of the country that were hit particularly hard by the housing crash have seen the most pronounced boom in flipping, as investors gobble up foreclosures and short sales — properties sold for less than the owners owe on the mortgage — and resell them to buyers eager to take advantage of record-low interest rates.

Maryland and Virginia have seen an increase in the number of flips during the past year, according to RealtyTrac. The District saw a sharp increase starting two years ago though the percentage in the last year is down slightly.
“Loan applications have tripled in the past few months,” said Justin Konz, an executive at Chantilly-based Restoration Capital, a “hard money” lender that provides fast, short-term financing to flippers. Konz said the firm funds everyone from weekend warriors flipping a house or two a year to professionals turning around dozens of houses a month.
“We thought it would slow down in the colder months,” Konz said. Instead, he said, business has picked up heading into the fall, with few signs of slowing.
With numerous investors and home buyers vying for a small list of available properties in the District and close-in suburbs of Maryland and Virginia, bidding wars and outsized offers have become a routine part of the landscape. The average gross profit for flipping a home in Maryland and Virginia is about $55,000, and it’s even higher in the District, according to RealtyTrac.

“It’s very competitive for people doing what I do, and the margins are very thin,” said Jud Allen, co-owner of D.C.-based Express Homebuyers, a company that flips dozens of local properties a year. “The upside is, if you can find a deal, you know you can sell it and make some money. The difficulty is in finding the deals, not selling the property.”

The flippers flocking to the market today are often a different breed than the opportunistic investors that helped fuel the housing boom.

The new generation of flippers can still frustrate some would-be home buyers by snapping up properties with cash offers and exacerbating low inventories in certain markets. But Blomquist said they also are playing a useful role.

Irvin, the 25-year-old flipper in Virginia, carefully researched each of his three properties — one in Dale City and a pair in Manassas — before buying. He said he spent tens of thousands of dollars improving the houses, refinishing hardwood floors, updating bathrooms, installing new kitchen cabinets and appliances, and landscaping yards but stuck to a tight budget to maximize his profit.
Irvin, who has a business management degree from George Mason University, plans to close on his fourth short sale this month, a home in Fairfax County that is larger and pricier than any he has flipped so far. With low interest rates, scarce inventory, rising home prices and willing buyers around Washington, he doesn’t plan on selling shoes again anytime soon.
“There’s always somebody who’s going to want to buy your house,” he said. “As long as there are short sales or foreclosures, I’m definitely going to want to be doing this.”

Source: washingtonpost.com

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