NEW YORK – John Helmick loves to buy homes reeking of cat urine and doesn’t mind if they’re infested with rats, bats or bees.
His seven-year-old Gorilla Capital seeks out some of the most distressed properties to avoid competition and get the best deals, then sells them 60 to 120 days later after major renovations for an average 13 percent return.
After flipping 400 homes last year, he expects to sell 500 in 2013 in eight states across the country, making the Eugene, Ore., firm one of the largest companies of its type in the U.S.
There are a lot of people in this industry who are looking to do nothing, or just buy paint and carpet, and those homes are much more competitive, Helmick, 54, said. The homes we’re buying, a lot of people won’t even touch them. They are not financeable.
With prices rising at the fastest pace since the real estate peak in 2006, buying and selling houses within six months, or flipping, is back in vogue.
Those types of deals are on track to hit a record this year after increasing 19 percent in the first half of 2013 from a year ago, and are up 74 percent from 2011, according to data from RealtyTrac.
Profits are also climbing to the highest in seven years, with investors making an average $18,391 on each sale, more than triple returns in the first six months of 2012 and compared with losses of $13,206 two years ago.
Investors are selling into a market teeming with private- equity firms building large-scale rental companies and potential homeowners trying to take advantage of mortgage rates rising from record lows – all while the number of homes for sale fell in January to the lowest level since 1999.
Home price appreciation is driving a surge in flipping, said David Lykken, managing partner of the Austin, Texas, consulting firm Mortgage Banking Solutions. If you have decent appreciation already built in and an increasing number of markets are still frothy, now’s the time to move on this.
Real estate professionals and amateurs by the thousands jumped into flipping before the housing collapse, artificially inflating demand as U.S. home prices doubled as measured by the S&P/Case Shiller 20-city index between January 2000 and July 2006.
Buying and selling properties to try and turn a quick profit became an American obsession spawning two cable-television series – Flip This House on A&E and Flip That House on TLC – that debuted in 2005 as the market was surging. In 2004, the average profit was 18 percent, or $40,487, according to RealtyTrac data.
As the market tumbled, the flippers were stuck with properties that were dropping in value and were among the first to walk away. About 7 million homeowners lost their properties through foreclosure or by selling for a loss since 2007, RealtyTrac data show, and availability became more restrictive after lax standards fueled the boom.