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South West Florida: A Hot Market
Southwest Florida is one of the best real estate markets in the country for property flippers to make quick money with homes in demand and prices rising, according to a new study.
The North Port-Bradenton-Sarasota metropolitan area was ranked ninth of the 25 most profitable cities for real estate flippers to net profits — beating out other housing hot spots like San Francisco, Cape Coral and San Diego, according to a report by RealtyTrac Inc.

The practice of buying and reselling homes for profit after a short period largely evaporated during the prolonged downturn and Great Recession.

But with prices climbing again and buyers circling for deals, flippers are again flooding back into the market to capitalize on appreciation.

“A bunch of things have come together, and there's this window of opportunity right now for people who can buy homes in bulk, turn around and flip them,” said Sean Snaith, an economist with the University of Central Florida. “It was really shifted toward a seller's market.”

RealtyTrac analyzed more than 600 metro areas nationwide where single-family homes were flipped last year, selecting the Top 25 based on the gross profit as a percentage of the original purchase price.

Sarasota's ranking came as a result of 999 single-family flips last year, a 79 percent increase over 2011.

The average purchase price on those properties was $116,783, with a subsequent average sale price of $156,983. That netted average gross profit of $40,200 on those flips, for a 34 percent yield, RealtyTrac's data showed.

Just this week, a Tampa company managed by Thomas Goebel netted $43,000 on two quick Sarasota flips, while another local firm managed by Thomas Smola made $34,000 flipping a house in Bradenton's Heritage Harbour neighborhood, court records show.

Orlando topped the RealtyTrac list, with 1,912 flips for an average gross profit of $64,976, or a 63 percent return. It was followed by Las Vegas, Phoenix and Tampa.

Miami, Cape Coral and Lakeland were the other three Florida metro areas to earn spots on RealtyTrac's ranking.

“One thing that makes Sarasota particularly desirable is that foreclosure rates there are less than the rest of Florida,” said RealtyTrac chief economist Jake Adger. “But the overall price level in the area is up.”

Checkered past Flipping reached its pinnacle during the housing boom of the mid 2000s.

The practice was lauded by industry participants and reality TV shows alike until rampant issues of mortgage and other fraud were discovered statewide.
In Southwest Florida, more than a dozen people went to prison for their roles in a massive flipping fraud scheme that involved inflating property values to defraud banks and hundreds of millions of dollars worth of properties.

The concept fell off when home values in the area collapsed during the Great Recession, amid waning buyer interest and lender inactivity.

But unlike the housing bubble of the mid-2000s, when flipping was based purely on speculation and investor belief in future appreciation, real estate analysts say profits now primarily come from property repairs and improvements.

Because many foreclosures need significant repairs and would not qualify for financing, flippers buy them and fix them, before re-selling to buyers that rely on, and obtain, mortgages, said Drew Peterson, a foreclosure specialist with the Re/Max Alliance Group.

“What investors have figured out is there's a lot of money to be made by fixing these homes that need a lot of work and selling them to the end user,” Peterson said. “That's what they're taking advantage of.”

With an inventory of homes for sale that now stands at just 3.8 months' worth, however, some investors are finding it difficult to find suitable homes to fix and flip.

Competition has arisen, too, from market opportunists and from longer-term investors who wish to acquire homes as rentals.

At the same time, institutional buyers like Wall Street's Blackstone Group and Colony financial have dominated local foreclosure auctions, sometimes shelling out well above asking prices for single-family homes. At times, those large buyers have outmuscled smaller flippers, said Shannon Moore, broker and owner of Green Lion Realty, who represents flippers in North Port.

Most buy-and-hold investors today have a set formula for the homes they want — properties with three bedrooms and two bathrooms, and covered parking built around or after 2000. But flippers have shown a willingness to break out of the mold and be more flexible in buying patterns.

Some economists believe flipping can be dangerous for a housing market because it often leads to — or causes — rapid price increases that can artificially inflate values beyond what is considered sustainable.

An overwhelming number of flips beginning in 2005 — many with fraudulent intent — helped fan the price run-ups that ultimately contributed to a historic decline in prices and record foreclosures.

Moore and others fear, too, that the rising popularity of flipping again could push Southwest Florida into another housing bubble.

“It's getting saturated,” Moore said. “It's harder and harder to find properties. There's just not as many homes out there as there were last year, and my investors are starting to get a little gun shy when they see these prices go up so rapidly.”

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