Beware the Risk of Artificial Appreciation
Flipping is back!
Home price appreciation has been so rampant, particularly in California and Florida,
that flippers and get-rich-quick scam artists are flourishing again. Just as in
the mania of 2004-06, flippers make money when the party is raging, but inevitably,
someone loses when the party is busted. We are advising our clients in areas with
a high percentage of flippers to take into account the risk of artificial price
appreciation.
Using a wide range of articles on flipping from across the nation, I looked at the
initial prices paid, amounts invested in repairs and improvements, and selling prices
for this anecdotal set of flipped houses. The average net profit after allowing
for expenses - sometimes the property was a major fixer, sometimes the repairs were
cosmetic - was 32%.
But not everyone is that sharp or fortunate. Smart investors will realize there is more
risk in investing now, given the degree prices have risen due to flippers.
Today, the fundamentals for continued price appreciation are very good in the majority
of markets. However, do not assume that recent successes will continue forever,
and be cognizant of the fact that artificial demand - flippers flipping to other
flippers is the ultimate artificial demand - can distort your market.
This is another insightful article from John Burns Real Estate Consulting
We are NOT at this point yet in the Puget Sound market. But, we should
be carefully watching during the next 1 to 2 years for the "Redline" or
saturation point.
Keep your risk low!!!
Picture from Kent Clothier.com
Thank for reading our Blog, Larry Tutino
