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September 18, 2014

Investors Embrace Risk in High-End Flipping

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Investors Embrace Risk in High-End Flipping

High-end and luxury house flipping is on the rise nationwide. According to RealtyTrac, the number of flipped homes valued at $1 million or more has risen nearly 40 percent across the country since 2011. RealtyTrac defines a home that has been both purchased and sold within six months as a flip.

In some markets, high-end flipping is becoming particularly big business. For example, between 2011 and 2012 alone, luxury house flipping rose a whopping 867 percent in Orlando and was up 456 percent in Phoenix, according to RealtyTrac.

"Flippers are getting more confident that the market is really recovering, and therefore are more willing to go high-end, even though it's more risky," says Daren Blomquist, RealtyTrac’s vice president. He says that refurbished mansions often sell fast via all-cash offers. 

For the past few years, investors have been targeting low- to mid-market homes, buying them at bargain prices and turning them into rentals. But with foreclosures falling, that market has nearly “dried up,” says Jan Brzeski, a private money lender running an investment firm in Los Angeles that provides loans to house flippers. As such, more investors are eyeing the high-end market for profits. 

However, with more money involved in the purchases, more money is at risk. But for some, it’s been worth it. Brzeski financed the purchase of a West Hollywood home in 2011 for $1.425 million, with an additional $1.175 million being invested in remodeling. The home fetched multiple, all-cash offers and eventually sold for $3.5 million. 

“This was an incredibly profitable project,” Brzeski says. “This really opened my eyes."

Source: “Flip that mansion: Investors see riches in luxury U.S. homes,” Reuters (Aug. 11, 2013)

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