Real estate "flipping" declines
The days of “flippers” are just about over, especially in California. “Flipping” became a popular real estate way of investing over the past several years during the real estate market boom.
“Flipping” is when an investor buys one or several properties and then tries to sell them for profit within about six months time, without putting much into the property. When the market truly was booming, “flippers” could make $50,000 or more per property within six months to a year.
Mike Ela wrote the August 26, 2006 article, “Real estate flipping declines in California,” posted on Inman News, which describes why and how fast these “flippers” are declining.
“The ‘flipping’ of homes in California declined to its lowest level in more than three years, according to HomeSmartReports.com, a company that offers information on real estate sales trends and property values.”
Investors are pulling back from this “flipping” strategy and are just trying to selling the extra properties they are stuck with. Some of these properties are now being sold for less than what the “flipper” actually paid for it.
“During the second quarter, 2.4 percent of the existing homes that sold statewide had been owned for six months or less. That was down from 3.2 percent for the first three months of this year and down from 3.5 percent for last year's second quarter, according to HomeSmartReports.com.”
According to HomeSmartReports.com, last quarter's “flipping” activity was the lowest since the first quarter of 2003, which was also at 2.4 percent. The most recent peak in “flipping” was during the first quarter of 2005 at 3.8 percent.
“‘Flipping activity is one of a number of risk factors we look at to see how healthy and stable a local market is, all the way down to the neighborhood level,’ said Ela, HomeSmartReports.com president. ‘What we look for when it comes to flipping are the big ups and downs, which can indicate stress.’”
“When factoring in commissions and costs, 24.7 percent of the second quarter's ‘flip’ sales resulted in a loss for the seller, the highest percentage since 25.8 percent during first-quarter 2002, according to the report. The second quarter was up from 24.4 percent during the first quarter, and up from 14.4 percent a year ago. Of those who lost, the median loss was $30,100.”
Overall, flippers sold their properties for a median profit of $44,500. Profits were lower on properties that needed home improvements.
Is there still a potential to make significant profits through “flipping?” There may be a few markets throughout the U.S. where this is possible, but California is pretty much “tapped out.”
Ela stated that flipping will still be prevalent regardless of the slowing status of the market.
“Flipping activity is always going on, as people identify opportunities, and they jump in if they have the money. This is not part of the core housing market, where people are putting roofs over their heads. This is a roll of the dice, and the investor may do well or not,” Ela said
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