The Return of the Real Estate Flipper!!!

There was nothing better than being a Real Estate Flipper in 2004 and 2005.  The Flippers would buy a piece of property today and literally sell it for a 10, 20, 30% return in a matter of days, weeks or months.  These returns were unheard of in market history.  We should have all known.  The interesting things was, the Flippers were not a small group, there were thousands of these “investors” involved in transactions throughout the country.

Unfortunately if you were holding a property around mid 2006, your pumpkin came due and you turned in to a Flopper.  Floppers got upside down on properties.  Also many Floppers did not have the financial means to carry the properties resulting in the enormous foreclosure numbers we have today.

But do not despair; the Flippers are back in the 2009 real estate market.  Real Estate is making history again, this time for large price decrease.  Cookie cutter real estate developments throughout Florida have seen price decrease as much as 60%.  Markets in Las Vegas, Chicago, and California have seen similar price decrease.  It is to note prices in metro areas that actually produce jobs have not seen the huge price decrease as have the speculative or vacation areas. 

So here they come in full force, the Flippers are making their come back.  With depressed prices, investors are buying property from sellers that must get out at bargain prices.  The savvy investor can find tremendous deals. The nice part is that these properties have solid fundamentals that make investing a good move at these low prices.  Cash flows on rentals make sense again and investment ratios are inline to make decent returns.  With appreciation on the horizon, we see clients buying real estate in their Self Directed IRA.  Assets inside a Self Directed IRA are tax free when sold guaranteeing additional funds are available for the next investment, not paid away as taxes.

At the Lee County Court house in Florida, on average there are 10 foreclosure specialist on any given day, that number the last month has jumped to over a 100 investors bidding on properties.  The typical strategy of the foreclosure specialist was to buy the property so low and then quickly put it on the market for a price that was usually the lowest in a neighborhood to guarantee a quick sale.  There have been so many foreclosures flooding the courthouse that smart buyers have figured out the deals. The effect is that now that demand is up, prices are not at rock bottom levels the are increasing because of the competition at the foreclosure auction. We are starting to see the signs of prices leveling off and actually increasing because of the demand.

Flippers need to be smarter than last time.  The highest price was only price that was accepted for a Flipper to sell in 2005, now they are notching their price just below the market to guarantee a quick sale.  Flippers will always be around; this time there will be a lot less.  In parting, next time my barber or waiter tells me what they are flipping real estate; I will run home and make sure I that I am selling.

Dave Owens is a CPA that specializes in Self-Directed IRAs and 1031 exchanges.  Please feel free to call him at 239-333-1031 or email him at owens@1031company.com.