New Study Takes In-Depth Look at Real Estate Flipping
|September 13, 2005|
First American Real Estate Solutions' Data and Analytics Reveal How Well Flippers Fared From 1999-2005
ANAHEIM, Calif., /PRNewswire/ -- First American Real Estate Solutions (RES®), the nation's largest provider of advanced property and ownership information, analytics and services, released a new study today that offers seldom revealed details on the practice of real estate "flipping," or the re-selling of residential properties for profit within 24 months of purchase.
Entitled: "Real Estate Flipping: Gold Mine, Mistake or Fraud," the study by Christopher Cagan, Ph.D., director of research and analytics at First American Real Estate Solutions, examines the prevalence of, and profits made from, flipping residential real estate properties from 1999 through June 2005 in three of the hottest real estate markets in the country: Las Vegas, Miami and Orange County, Calif.
The study draws a distinction between legitimate flipping, which is defined as the purchase and quick resale of distressed or undervalued property for profit, versus fraud, whereby the perpetrator uses false information in a real estate transaction to obtain unlawful profits.
Real estate prices have risen dramatically in recent years, with annual appreciations of 20 to 30 percent in some areas. The study shows that flippers obtained returns far in excess of those strong gains -- above 100 percent per year in many cases. The particularly profitable "sweet spot" of the elapsed time between purchase and flip sale is revealed through statistical analysis as being from three to six months of duration. Other key findings include disclosure of gross and adjusted rates of return for different types of flip re-sales and identification of specific zip codes where flipping was the most frequent and where the highest returns were obtained.
"While the market has done well overall, flippers have done even better," said Cagan. "During the past six years, flippers have exercised a level of strategic intelligence and savvy in their investments that proved to be even more profitable than the strong gains experienced by the general market.
"Among the strategies employed by purchasers who flipped properties within two years were investing in the hottest local markets; purchasing distressed, under-valued or foreclosed properties; and taking advantage of the psychology associated with a market experiencing higher than historical rates of appreciation to earn spectacular returns on their investments."
The study is derived from the pairing of First American RES' analytics and its vast real estate transaction database. "Our ability to deliver understanding and insight into previously under-analyzed segments of the real estate market provides added value for our customers and those monitoring the marketplace," said George Livermore, president of First American Real Estate Solutions.
During the last decade, First American has amassed the nation's largest database of real estate information and today utilizes it in conjunction with proprietary processes to improve operational efficiency and deliver new analytical products and services to its clients.
Source: The First American Corporation