Despite a recent stall, the rate in which homes have appreciated in 2013 continues to encourage investor activity. The third quarter of this year witnessed investors make substantial house-flipping profits. Those that remain apprehensive, as to the direction the market is heading, should familiarize themselves with current trends. According to a Home Flipping Report, released by RealtyTrac, most of today’s profits come from a surge in high-end flips. That is to say, houses worth $750,000 or more are leading the flipping industry.
Of particular interest to investors are the markets in which these flips are occurring. Typically, investors focus on the acquisition of lower end homes to increase profit margins. However, the RealtyTrac report acknowledged that real estate investors earned an average gross profit of $54,927 on single-family flips during the third quarter. That was up 12 percent from an average gross return of $48,893 in the third quarter of 2012. More importantly, these profits are generally the result of flipping higher end homes.
It is also important to note that the transition to higher end property flips was partially attributed to the lack of REO properties made available. Years of investor activity have made it increasingly difficult to acquire foreclosure properties or short sales at a discounted price. Subsequently, those that do are often forced into a buy-and-hold scenario, as to recoup profits from recent appreciation rates.
These factors have forced many to invest in higher-income neighborhoods, with a significant degree of success.
“Increasing home prices over the past 18 months combined with decreasing foreclosures have created a market less favorable to the high quantity of middle- to low-end, bread-and-butter flips that we saw late last year and early this year,” says Daren Blomquist, vice president at RealtyTrac. “But the sharp rise in high-end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes. With that higher risk also comes the potential for higher reward. The average gross profit on each high-end flip equals more than four times the average gross profit on each flipped home in the lower price ranges.”
Of course, to partake in this new trend, investors need to know where to look. According to RealtyTrac, the following are the top housing markets for flipping in the third quarter:
- Ventura, CA: Average purchase price is $406,685 with a gross profit of $143,578
- Los Angeles, CA: Average purchase price is $409,021 with a gross profit of $127,634
- Seattle, WA: Average purchase price is $227,478 with a gross profit of $97,002
- Chicago, IL: Average purchase price is $191,164 with a gross profit of $85,814
- Portland, OR: Average purchase price is $213,795 with a gross profit of $84,063
- New York, NY: Average purchase price is $407,170 with a gross profit of $72,722
- Pittsburgh, PA: Average purchase price is $44,487 with a gross profit of $59,342
- Las Vegas, NV: Average purchase price is $144,197 with a gross profit of $53,503