Is Home Flipping En Vogue Again?

Flipping is opening the market to homes that would otherwise be a tough sell.

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FE_DA_120926Remodeling.jpg
A man takes measurements to remodel a home in Denver, Co.

Arguably some of the most reviled characters involved in the housing bust, home flippers are making a comeback, profiting once again from growing strength in the nation's hobbled housing market.

In the first six months of 2012, there were almost 100,000 property flips nationwide, according to foreclosure information site RealtyTrac, an increase of 25 percent from 2011 and 27 percent from 2010. Average gross profits were almost $30,000 not including rehab costs.

"What's attracting more folks to [flipping] now is that we're seeing prices rising," says Daren Blomquist, director of marketing communications at RealtyTrac. "It's a much more forgiving climate for flippers to operate under."

While the primary draw to the flipping industry might be rising home prices, there wouldn't be much opportunity if it weren't for the clog of distressed and vacant homes across the nation, especially in regions that suffered the most in the foreclosure crisis. Many of those homes have "good bones," experts say, but face more serious issues (such as mold), or lack cosmetic updates that would make a property move-in ready.

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Because many would-be buyers don't seem to be looking for an extreme fixer-upper, the availability of affordable, move-in ready homes is tight, crimping sales figures across the nation.

"What we're seeing across the country is a lack of general inventory—there's just not as many homes on the market, which is driving prices up and pushing properties into multiple offer situations," says Mike Baird, co-host of Spike TV's Flip Men and a flipper of more than 1000 properties in the Salt Lake Valley area.

That's where flippers come in. While re-tiling a kitchen floor or gutting a bathroom might be too big a project for the average homebuyer, full-time flippers can turn around a complete home rehab in 106 days on average, according to RealtyTrac.

Here's a glimpse at the most lucrative locales for flippers:

Metro Area
Total Flips Jan to June 2012
Percent change from 2010
Avg Gross Profit*
Phoenix-Mesa-Scottsdale, Ariz.
9,182
26 percent
$54,870
Las Vegas-Paradise, Nevada
5,464
80 percent
$12,819
Los Angeles-Long Beach-Santa Ana, Calif.
5,358
27 percent
$53,142
Miami-Ft.Lauderdale-Pompano Beach, Fla.
5,114
123 percent
$38,943
Riverside-San Bernadino, Calif.
4,567
8 percent
$26,069
Atlanta-Sandy Springs-Marietta, Ga.
4,185
52 percent
$12,207
Sacramento-Arden-Arcade-Roseville, Calif.
3,048
17 percent
$30,201
Denver-Aurora, Colo.
2,714
23 percent
$7,732
San Francisco-Oakland-Fremont, Calif.
2,538
10 percent
$44,523
Detroit-Livonia-Warren, Mich.
2,383
34 percent
$171

Source: RealtyTrac; * Excludes rehab costs

And while flipping might have a negative connotation in the wake of the worst housing meltdown in recent history, it's a necessary step in clearing the nation's outsized inventory of highly distressed properties, Blomquist says.

"This is legitimate flipping. This is people coming in and finding a property that needs a lot of work, and putting in the sweat equity to bring the property up to a rentable value or [in a condition] to sell," he adds.

Baird agrees. Although he compares the activity he's currently seeing in the flipping space to what it was during the housing market's heyday in the early 2000s, it's not the kind of "irresponsible" flipping that helped bring the market and economy to its knees just a few years later.

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Whereas inaccurate appraisals and unscrupulous real estate speculators were mostly to blame for the flipping industry's bad rap, Baird sees today's flippers making more calculated business decisions based on current market conditions.

"People [are] thinking we're at the bottom or near the bottom, interest rates are at an all-time low and so we're jumping in and we're buying properties at rock bottom, fixing them up and selling them," Baird says. "Contrast that with when things were crazy and people were buying property to simply speculate in the short term [on] price appreciation seen in years past."

Furthermore, Baird and Blomquist don't anticipate the frenzied flip jobs seen in the early 2000s. Instead, flipping will be more gradual and will follow local housing market recoveries.

"I think it will spread—investors are flipping a lot in Phoenix right now, but they're moving to different markets," Blomquist says. "Flipping is a long-term phenomenon. If investors run out of prospective properties in one market, they move on."

Meg Handley is a reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.