Real estate investors often turn to home flipping as a great way to make money and break into the industry. The segment is closely tied to foreclosed houses, as these types of properties are often the cheapest to buy and sell quickly.
Even with investor interest, recent foreclosure figures are on the decline and overall home flipping numbers are down, according to data from RealtyTrac. However, a certain portion of real estate investors are still finding success - flipping high-end homes for a solid profit.
Home flipping trends shift
Home flipping has constantly been a lucrative, desirable market for many real estate investors. At the moment, though, RealtyTrac data points to a decline in overall flips in the third quarter of 2013.
In total, there were only 32,993 single-family home flips for that time period. While that may seem like a lot, that figure is actually a 35 percent decrease from the second quarter and a 13 percent drop from the same time in 2012. Although the number is down, revenue is up - real estate investors averaged a gross profit of $54,927 on home flips for the quarter, a 12 percent jump on an annual basis.
One reason as to why, according to RealtyTrac, is because investors have been focusing on high-end homes to flip. This idea could be a sound investment strategy, although the cash needed up front is greater - but the payoff at the end could be as well.
"Increasing home prices over the past 18 months combined with decreasing foreclosures have created a market less favorable to the high quantity of middle- to low-end bread-and-butter flips that we saw late last year and early this year," said Daren Blomquist, vice president at RealtyTrac. "But the sharp rise in high-end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes."
While the percentage of flips for many lower-priced properties actually declined, flipping saw a year-over-year positive change of roughly 350 percent for homes valued between $2 million and $5 million.
Regardless of price tag, real estate investors need to understand each housing market well. Courthouse Retrieval System can help, with an expansive collection of mortgage records, property data and much more.
Investors still find success
Even though the overall number of foreclosed houses is on the way down, real estate investors can still find great value across the country. In the past, smart investments included bank owned properties and other homes offered for cheap. Now, some people find that more expensive is the way to go.
For example, Nicholas Sinatra is a real estate investor in Los Angeles, and his business - American Coastal Properties - is capitalizing on high-end buyers and large price tags, according to CNBC. One way these costly acquisitions take place is with all cash, and that strategy could work for even more modest investors.
Sinatra explained to CNBC that instead of tearing down homes, flippers should focus on stripping them and working from within. That means investors can avoid tax and zoning issues common with new construction, he added.
"We are pioneering this higher-end space, so there aren't as many other investors in the space, and when they do come in the space that's going to allow the pricing to run a little bit, so we're optimistic about the next three to four years as to where the space is going," Sinatra told the news source.
Overall, high-end flips carry risk but offer a big payoff. Regardless of choice, real estate investors should always be smart when buying and selling homes for a profit.