House Flipping Heats Up at the High End

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

If house flippers flooding all ranks of the real estate market eight years ago was the sign of the impending market downturn, then what does it mean that investors are embracing high-end flipping today?

Reuters this week ran a story that looked at a growing trend in the flipping of high-end homes. "Flipping" is the term we give when someone buys a house at a low price, usually invests a bit – or a lot – of money in remodeling, then sells for a nice profit.

Flipping was once a street sport where you'd find just about anyone regardless of investing or real estate experience partaking in markets across the U.S. But it faded out pretty quickly when the downturn hit the housing market.

Even Jeff Lewis, star of Bravo's "Flipping Out" has since pivoted to a design services model.

It's back – but in a different form. And it could mean better things for the market rather than being an ominous sign for rampant speculation and decline.

This time, what Reuters reports is more flipping with luxury homes. According to Reuters, the number of flipped homes valued at $1 million or more has risen nearly 40% nationwide since 2011. It's important to note that RealtyTrac defines a flip as a home that's been purchased and sold within six months.

RealtyTrac cites a few specific markets where high-end flipping is rampant. Luxury house flipping was up 867% in Orlando between 2011 and 2012, and increased 456% in Phoenix. To get a deeper sense of what these percentages mean, the number of flipped high-end homes in Orlando went from 3 to 29 during this time, from 27 to 150 properties in Phoenix, and from 10 to 73 properties in Las Vegas.

What's driving this activity?

Well, as one source tells Reuters, the opportunity in flipping at the low end has all but dried up. And despite more risk with more dollars at the high end, the investments have paid off handsomely for those investors who know what they're doing.

I like to look at it as another example of why real estate is never just one story. With so many markets each centering on different local economies and so many different levels of each of those markets – low to high end – it's almost impossible to make blanket statements about the state of housing.

But it's easy to see how the growth in investment at the high end is a positive overall. If nothing else, the confidence investors must have going into these high-end deals is a wonderful strength that eventually will help strengthen overall confidence in the greater housing market.