House flipping’s status as an aspirational American pastime took some hits during the recession but, like disco or SUVs, it has never gone extinct. On the contrary, it is back with a vengeance. Cable TV shows glorify expert flippers and infomercials flog seminars for novice investors eager to dive into this risky market.
Yet there is a catch. Homebuyers that dabble in flipping homes may vie against Wall St.-funded teams that turn over hundreds or even thousands of distressed properties in short periods.
Although many American housing markets are staging a recovery, there is a deep inventory of foreclosed or bank-owned properties that investors can tap into at below-market prices. And it is working: house flippers have grossed an impressive $29,342 on average for each property in the first half of this year, according to RealtyTrac, a leading supplier of foreclosure industry data. From purchase to sale, the average flipped home is turned around in just 106 days.
Wall St.-backed home flippers enjoy the advantage of scale and cash purchases, says Prof. Christopher Leinberger, head of the real estate program at George Washington University School of Business. That is particularly true in large housing markets such as Las Vegas or Phoenix that have a bounty of bank-owned residences. “I would think that a small player would have a better opportunity in a small town,” Leinberger says.
While small towns within large metropolitan statistical areas (MSAs) sport impressive gross profits, large housing markets such as New York City, Washington, D.C., and San Jose, Calif., boast the most profitable average flipped home sales.
Nearly two-thirds of the homes being flipped are sold to first-time homebuyers who seek a modest, 1,500 square-foot-size starter home — three bedrooms and two baths in a residential neighborhood, for example.
Once predominantly practiced in West Coast metropolitan areas such as Las Vegas, Phoenix and Los Angeles, house-flipping action is not restricted to those areas. Daren Blomquist, VP of RealtyTrac, says, “Investing seems to move from West to East and we’re seeing investors starting to move to East coast markets.”
When it comes to house flipping, of course, location matters greatly. “If you’re looking to do a lot of flips I would avoid overly crowded markets,” advises Blomquist. “But if you’re looking to do a flip or two a year or if you’re getting into it as a hobby or make some income, my advice is stick to the market that you know well. There almost always will be a potential property and a prime opportunity that you can jump on when it [becomes available.]”
24/7 Wall St. asked RealtyTrac for home flip data for the first six months of 2012 for nation’s top 500 MSAs. We highlighted the 10 foreclosure centers where flippers are turning the highest average profits on sales of residential homes this year. We defined foreclosure centers as the best-known cities within metropolitan statistical areas that had an above-average number of house flips in the first half of 2012. We also excluded those markets with fewer than 205 flips in 2012, which was the national average. In addition to these RealtyTrac data, we included in our analysis home price change projections from Fiserv as of the first quarter of 2012. Additional home price data were collected from Trulia.
These are the best cities to in which to flip a house.