You Can Make Money in Real Estate
Some markets are still hot enough to make tons of money by flipping a home fast.
July 31, 2007 Special to ABCNEWS.com — -- In March, real estate investor Chris Knight paid $10 million for an 8,500-square-foot, 13-bedroom mansion in Shelter Island, N.Y. Two weeks later, he put it back on the market. Price tag? $33 million.
If he pulls off the sale, no doubt he'll be in the running for flipper of the year.
Problem is, there's not much competition for the hypothetical honor.
Flipping — in which an investor buys a home, makes quick improvements and resells at a higher price — "was a rage in the housing market surge," says Anthony Sanders, a professor of real estate finance at Arizona State University. "But it is not as popular in this flat housing market."
It's easy to understand why. With prices falling quarter after quarter, the prospect of buying low and selling lower doesn't sound nearly as appealing as buying low and selling high.
However, those looking to make a quick buck may do so in a number of markets ripe for a well-spotted flip.
Best among them is Seattle. It landed atop our list based on a number of measures.
Using data from Moody's Economy.com, we looked at the nation's 40 biggest metros and calculated a market's rate of sales against inventory to determine supply and demand. Next, we looked at current and new-home construction numbers through the end of 2008, based on data from the National Association of Home Builders (NAHB). A steady increase in new-home stock makes prices more affordable. Not good news for flippers.
Next, we measured price appreciation over the last year, according to data provided by the National Association of Realtors, to get a sense of short-term market direction. Then, we mixed in Moody's figures on investor share. In a real estate market, the higher the share of investors, the more sellers outweigh buyers, which equals bad news in a bearish market.
Seattle performs well by all these measures. There is a steady stream of buyers scooping up property in the area. What's more, new-home starts there are expected to go down by about 7 percent through 2008; that's like sounding a dinner bell to short sellers. With already-strong price appreciation, a decrease in new-home construction helps jack up prices. A relatively low investor share of 10 percent is a neutral factor.
