Home flippers -- investors who buy and sell property within a few months for a quick profit -- are back in the market, but this time around, with an improved reputation.
According to RealtyTrac, the pace of single-family home flipping in the first half of this year was 19 percent higher than it was in 2012 and 74 percent higher than it was two years ago. The average profit of $18,391 per home in the first half of 2013 was up a whopping 246 percent from a year ago.
Putting their own skin in the game
Before the housing crash, home flippers were more speculative, says Thomas Pinkowish, a mortgage consultant, author and educator based in Connecticut. They would borrow most of the cost of the home's purchase price, put little to no money into renovation, and sell it within six months for a 10 percent profit. The activity of these speculators, especially in hot areas of the country such as California, fueled a buying frenzy that spiked prices, resulting in the housing bubble.
Since the housing market collapse, home flippers have entered the market with their own money and are taking the time to renovate homes. "They're putting their own skin in the game and doing quality work on these homes," Pinkowish says. "To me, that's a completely different scenario than speculative investing."
A sign of a housing rebound
Home flippers and investors are also rebuilding housing stock at a time when demand from buyers is increasing. John Walsh, president and CEO of Total Mortgage in Milford, Conn., says the re-emergence of home flippers signals a positive change in the market because they see the ability to sell to buyers quickly. "It means there are actually buyers out there," he says. "All in all, it marks an improving housing market."
Another positive change in the post-housing-crash market is that more buyers are educated, particularly first-time buyers, says Pinkowish. They've seen the foreclosed homes and understand how much work has to go into renovation. "There's more temperance in the marketplace," he says. "I think the word is out, and realtors are educating buyers more." Buyers are also talking to neighbors and doing research on their own, Pinkowish adds. "Either formally or informally, new buyers are a lot more aware."
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