When they add value by putting in new floors and appliances, they help to fill a gap in the market.
Bruno Duarte in front of a house he is flipping in Oakland Park, Fla.. Flippers often improve the homes they purchase, boosting the price, but also the local housing market. “When I put a house back up for sale, it usually goes very quickly,” the 34-year-old former stockbroker said.
Home flippers got a bad name during the housing boom. They sold properties for big profits in days or weeks, and the rapid price appreciation created a frenzy that led to the eventual bust.
But today’s flippers are getting credit for helping the market recover. They’re taking time to add value, sprucing up the landscaping and putting in new floors and appliances.
“When I put a house back up for sale, it usually goes very quickly,” said Bruno Duarte, a 34-year-old former stockbroker.
“Prices since last year have risen a lot,” he said. “Houses I used to buy for $70,000 or $75,000 cost $80,000 now. They’re costing a little more to buy, but they’re also selling for higher prices, too.”
The best areas for flips are those where prices fell the most, industry observers say. In South Florida, for example, values tumbled by about half before hitting bottom in 2012. That year, flipped homes in the metro area of Palm Beach, Broward and Miami-Dade counties had an average 37 percent gross profit, according to a recent study by RealtyTrac Inc. The firm counted a flip as a sale that occurred within six months of the previous transaction.
In many cases, flippers are paying cash for dilapidated properties that other buyers won’t touch or can’t get a lender to finance, said Daren Blomquist, a spokesman for RealtyTrac.
“There will always be some bad players, but overall, flippers seem like they’re filling a necessary gap in the market,” he said.
Although investors are enjoying robust returns, one problem these days is a lack of homes for sale.
Many owners are holding off until prices rise, or they can’t sell because they’re “underwater,” owing more than the house is worth. Also, large investment funds have swooped into some markets and are buying foreclosed homes in bulk, depleting already-thin inventories.
Lex Levinrad, founder of the Boca Raton, Fla.-based Distressed Real Estate Institute, said individual investors looking for homes to buy should target short sales rather than bank-owned homes.
In a short sale, the homeowner needs the bank’s permission to sell for less than the loan amount. To find delinquent homeowners in need of a short sale, investors can search public records or team with an experienced real estate agent, he said.
“Short sales are easier than foreclosures because there’s not as much competition,” said Levinrad, who trains investors. “Some of the best deals are short sales, hands down.”