The rebounding U.S. real estate market is leading to a renaissance in "home flipping" -- the investment strategy in which you buy distressed houses, make minor upgrades and resell the properties a few months later for quick gains.
"Right now is an ideal [time] for flipping, because we're seeing home prices bounce off of the bottom," says Daren Blomquist of RealtyTrac.com, which recently named the 25 Top U.S. Markets for Flipping Homes -- including some that offer more than 50% gross returns.
Made popular by reality-TV shows such as "Flip This House," home flipping looked easy during the housing boom when prices kept rising. The strategy became decidedly harder during the real estate bust that followed.
Now, flipping is enjoying a comeback because home prices have bottomed out in many U.S. locales and begun to rebound.
Blomquist says today's best markets for flippers soared during the boom and collapsed during the bust. Many are also in the so-called "Sand States" of Arizona, Florida and Nevada, which suffered through some of the nation's highest foreclosure rates in recent years.
"These markets all crashed pretty hard, so they've got lots of available distressed properties," Blomquist says. "But they're also perpetually popular with consumers because they're located in the warmer climates that many people want to move to."
Here's a look at the five metro areas that RealtyTrac believes offer today's best opportunities for home flips (defined as buying and selling the same property within six months).
The site ranked each city based on how much gross profit local home flippers enjoyed in percentage terms on the average 2012 single-family sale, excluding renovations and other expenses beyond what investors initially paid for properties. All cities also had at least 500 home flips during 2012, as well as 9% or higher average annual home-price appreciation during 2013's first quarter.
Fifth-best U.S. city for home flippers: Memphis, Tenn.
Average gross profit on 2012 deals: 42%
Memphis is unusual among the markets at the top of RealtyTrac's list that it's not in a Sand State, nor did it have the massive housing boom and bust other cities saw in recent years.
Still, Blomquist says the 1.3-million-person metro area is hot among flippers because it's got lots of older houses that cost little to buy and lend themselves to quick fix-ups and resales.
RealtyTrac found that the average Memphis home flipper paid just $68,318 per house last year (the lowest price among the top five cities in the rundown), but resold properties for $96,870. That's a 42% gross gain.
Another plus: The average Memphis home price rose at a 13% annual rate in 2013's first quarter.
The U.S. housing bust and foreclosure crisis slammed Tampa, but Blomquist says that means the 2.9-million metro area has lots of distressed properties for flippers to choose from.
The Cigar City also has an aging housing stock that's ripe for renovation, plus a warm climate that's popular with consumers -- all of which add up to great potential for home flips.
RealtyTrac found that the average Tampa property flipper enjoyed a 43% gross return in 2012, paying $79,538 for a house but selling for $113,676. Average Tampa home prices also rose at a 9% annual rate during the three months ended March 31.
Average gross profit on 2012 deals: 44%
Like the phoenix of Greek mythology, the Phoenix housing market is rising from its own ashes.
One of the U.S. cities hardest hit by the housing bust, Arizona's capital has recently seen real estate rebound sharply. Average Phoenix-area home prices soared 33% between 2012's first quarter and 2013's opening three months -- the strongest appreciation of any city atop RealtyTrac's rankings.
All told, the typical 2012 Phoenix home flip generated a 44% gross return, with investors paying $146,528 on average per property but selling for $210,290.
Still, Blomquist warns that Phoenix home values are rising so fast that he sees "the biggest red flags among any of the top five cities on our list. The market there might be overheating and a new bubble forming."
Average gross profit on 2012 deals: 53%
Las Vegas had America's highest foreclosure rate for 60 straight months between mid-2007 and mid-2012, but Sin City's housing market is rebounding faster than you can say "hit me."
Average home prices in the 2-million-population metro area rose at a 24% annual clip during the first quarter, while the typical local flipper paid $133,198 per home in 2012 but sold for $203,945. That works out to a 53% gross return.
"Las Vegas had a very dramatic boom-and-bust cycle over the past seven years, but prices probably overcorrected," Blomquist says. "Investors finally realized that prices got too low, so it's made sense to them to jump back in.
Average gross profit on 2012 deals: 63%
Walt Disney World's hometown has become a real Magic Kingdom for home flippers.
Blomquist says that while Orlando had one of America's worst foreclosure rates over the past five years, average local home prices rebounded at a 12% annual rate during 2013's first three months.
RealtyTrac also found that flippers paid a modest $103,701 on average per property in 2012 but sold for $168,677 -- a 63% gross return.
Blomquist says Orlando homes have historically enjoyed strong resale demand from retirees and warm-weather lovers. He adds that if you can't successfully flip a home, you can usually turn it into a vacation rental -- "a good, solid fallback plan."
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