December 8th, 2009 by Michael Oliver

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The Tucson Arizona (AZ) home “flipping” market is back without a doubt. However unlike a 5 years ago when home prices going up alone sometimes as much as 5%-10% in a couple months which made “flipping” profitable this time around it’s only the skilled, knowledgeable flipping professionals that are in the market. These professional investors are purchasing properties that are in need of serious work for next to nothing at foreclosure auctions in Tucson. They then are fixing them up and then reselling them in most cases for a quick large profit. The skill lies in being able to identify properties quickly and knowing the real estate values of the neighborhoods extremely well, then being able to buy the homes at cheap enough prices to make the repairs and re-list the home just below market for a quick, profitable “flip”.

In the past couple months I have done research for some flippers and sold some properties that flippers had bought fixed and flipped in less than three months from beginning to end. From doing the research in public records and then seeing the final flipped sale prices minus what the cost of repairs probably were the returns are high. In one home I sold the flipper bought the property for roughly $80,000 in my estimate put $30,000 into rehabbing it, and then resold the home in 91 days (FHA won’t allow sellers to sell a flip to a FHA buyer in anything less than 90 days.) for roughly $160,000. Now the home was still priced under market at the $160k resulting in a quick sale. Once you do the numbers you can see the investor (flipper) was roughly $110,000 into (or vested) in the home and re-sold it for $160k grossing about $50,000. After fees and etc it’s safe to say the flipper netted at least $150,000 on the sale resulting in about a $40,000 net profit in 91 days! OR a 36.4% return on their investment in 91 days! Any investor anywhere in the world right now would be ecstatic with a 36.4% return on investment in only in such a short amount of time.

When you show the cumulative numbers if a flipper got these returns throughout the year and kept flipping home after home making the same 36.4% every 91 days they would have a cumulative return at the end of the year of 146% A YEAR! Now with all things that seem so “easy” there is major risk, the Tucson real estate market while it provides a lot of opportunities for the professional investor is not always an easy place to make money. Sometimes homes need more work then thought, sometimes the local neighborhood market changes severely quickly. Anything can happen and the flipping homes business is an ultra risky yet possibly an ultra high return investment arena. Only professional investors or those with the skill and a real estate investment professional assisting them (REALTOR specializing in investment) should enter this segment of the market.

While this one property I personally sold is an example I have been showing a lot of my other buyer client’s professionally flipped homes and it’s amazing to me the vast amount of them entering the market. Just yesterday alone I showed 2 or 3 “flips” all below what I felt the homes were worth. The homes all showed well and when I went back and did the research to discover what the investor purchased the home for it was interesting to see each one of these properties showed (after repairs as far as I could tell) significant return on investment upon successful sale of the property. These properties were also flipped quickly in most cases from initial purchase to hitting the market all fixed up in less than 75 days.  On a side note since construction employment is lagging in Tucson I would be willing to bet finding skilled labor to repair the homes and getting high quality work from the crews is not a hard thing to find for flippers right now. Construction costs should be extremely low currently in Tucson adding additional profit to the professional flippers returns.

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