Study Identifies Flipping's Sweet Spot

REALTOR® Magazine Online
Investors who resell a property between three and six months after buying it are most likely to earn big profits, according to a study of flipping in three hot U.S. markets.

Flipping, or buying undervalued property to earn a profit after a resale within 24 months of the purchase, nets returns three to five times greater than annual appreciation in a given market, the study also shows.

Anaheim, Calif.-based First American Real Estate Solutions conducted the study of transactions in Las Vegas, Miami, and Orange County, Calif., from 1999 through June of 2005. While home prices in those markets rose by 20 percent to 30 percent a year, flipping investors often earned what amounted to more than a 100 percent rate of appreciation.

The study revealed a "sweet spot" of three to six months from the time of purchase to the sale. During this period, the annualized rate of return was usually 20 percent to 40 percent or more above the market's overall appreciation rate.

Las Vegas yielded the largest percentage of flippers, compared with Miami and Orange County, who earned 40 percent or more during the sweet spot period. Las Vegas also yielded a greater percentage of flippers earning the highest levels of returns during six to 12-month flips and 12 to 24-month flips.

Longer flips earned the most, as much as 140 percent, but fewer flippers remained in the market that long. Again, Las Vegas yielded a greater share of long-term flips that earned top dollar.

Christopher Cagan, author of "Real Estate Flipping: Gold Mine, Mistake or Fraud" and First American's director of research and analytics, says flippers reaped greater returns than the general market because they invested in some of the nation's hottest markets and purchased distressed or undervalued properties.