The New Role of Flippers in the Housing Economy

by 17 Oct 2012

(TheNicheReport) -- Real estate flippers were a prominent feature of the American housing bubble during the first decade of the 21st century. In just a few years, flipping went from being a business opportunity to a lifestyle. Cable television reality shows like Flip This House, Flip That House and The Property Ladder capture the imagination of would-be real estate investors. Many novice and greedy flippers without clear exit strategies eventually suffered considerable losses when the bubble burst in 2008. 

As soon as some regional housing markets began showing signs of a recovery in 2012, real estate investors descended en masse on metropolitan areas like Phoenix and Miami -and a new breed of flippers followed them along. According to data released by real estate analytics firm RealtyTrac, flippers were involved in nearly 100,000 residential transactions during the first half of the year. This time around, however, the rules of the flipping game have changed.

Today's Flippers are Middlemen

During the American housing bonanza of the early 21st century, flippers were derided as opportunistic speculators who provided little value to the real estate process. A home is normally considered flipped when it is sold for profit in less than six months after acquisition. In the heat of the housing bubble, many flippers were able to sell homes within weeks of purchase, often to other flippers. 

While flipping activity in the U.S. has increased by 25 percent compared to 2011, lighting-fast flips are no longer the norm. While in the past flippers were able to easily unload a property in "As-Is" condition for a quick profit, the current situation calls for a strategy that injects value into properties before they are flipped. In the past, flippers counted on quick price appreciation and extremely cheerful forecasts for housing; that is no longer the case. 

Many house hunters these days, from real estate investors to first-time home buyers, are choosing quality over mere speculation. As a result of this preference, flippers have turned into middlemen of sorts between investors and home buyers. While investors hold the upper hand thanks to their ability to sniff out bargains, particularly in distressed properties, flippers are adding value by rehabilitating and remodeling the homes they intend to flip.

Old-Fashioned Flipping in Some Regional Markets

Some sporadic flipping based on pure speculation has taken place in markets where demand for rental properties is high. Most of these old-fashioned flips are investors like hedge fund and Real Estate Investment Trust (REIT) managers who may wish to exclude a property from their portfolios. Such is the case in places like Phoenix. 

The average gain on a flip these days is about $32,000. That is the gross profit; it does not take into account the expenses incurred by flippers in bringing the properties back to a market-ready shape.



Is TILA-RESPA a good or bad thing long term?