Realtors may want to start a list of foreclosed houses in high-value areas: Between limited inventory and the possibility of a significant profit, real-estate flippers have turned to buying run-down, high-end properties. This along with the high demand for homes creates the ideal backdrop for renovators looking to sell their newly renovated properties quickly for a price above the original selling price and the cost of repairs.
Jordan Ghrist, president of Level One Development LLC and a flipper in D.C. recently told the Wall Street Journal that, after giving a four-bedroom luxury home a "total gut job," he estimates that once the house's sale for $805,000 is finalized, he will have turned a 28 percent profit. He found the $461,500, 2,000-square-foot property through Beth Hughes, a Realtor with DCRE Residential who specializes in finding potential homes for flippers. The house spend a baffling three days on the market.
"Investors have actually run out of inventory on the low end of flips, and now they're moving to the higher end," Daren Blomquist, vice president of RealtyTrac, told the news source. "The million-dollar homes are the untapped market."
Limited inventory enables real-estate flipping
Luxury flipping has the potential for drastic profit or losses. A recovering, but still constrained inventory has driven the amount of time homes spend on the market to a statistically significant low. The amount of homes that went under contract within one week experienced an uptick of 54 percent from 2012, a number that hasn't been seen since January of 2011, according to Redfin. This is beneficial to flippers, who aim to make higher net profit by selling the renovated homes within six months, the Wall Street Journal noted.
While inventory is increasing, as it had from April to May by 5.82 percent, it is still 10.11 percent lower than it was in June of 2012, according to IPIN Global. However, the investment is still a gamble. With a high-value home, buyers expect unique features, so renovations are expensive. There's no guarantee that your net profit will be in the black.
"These aren't paint-and-lipstick jobs," Bruce Bartlett, flipper and managing partner at Sequoia Real Estate Partners told the Wall Street Journal. "Basically, you have to re-envision the entire house."
Bartlett went on to note that he minimizes his risk of losses by seeking savings in the renovations and checking the parts of the house that might create a money pit, namely the roof, foundation, electrical system, heating, air-conditioning and plumbing.