Real Estate Flipping: Gold Mine, Mistake or Fraud?

First American Real Estate Solutions' latest study offers seldom revealed details on the practice of real estate "flipping", or the re-selling of residential properties for profit within 24 months of purchase. The study draws a distinction between legitimate flipping, which is defined as the purchase and quick resale of distressed or undervalued property for profit versus fraud, whereby the perpetrator uses false information in a real estate transaction to obtain unlawful profits.

Entitled "Real Estate Flipping: Gold Mine, Mistake or Fraud," the study examines the prevalence of and profits made from flipping residential real estate properties from 1999 through June 2005 in three of the hottest markets in the country: Las Vegas, Nev., Miami, Fla., and Orange County, Calif.

The study shows that flippers obtained returns far in excess of even the strongest market gains - above 100 percent per year in many cases. The particularly profitable "sweet spot" of the elapsed time between purchase and flip sale is revealed through statistical analysis as being from three to six months of duration.

Other key findings include disclosure of gross and adjusted rates of return for different types of flip re-sales, and identification of specific zip codes where flipping was the most frequent and where the highest returns were obtained.

About the Author
Dr. Christopher Cagan, Director of Research and Analytics for First American Real Estate Solutions, has more than a decade of experience in the areas of market research and competitive strategy for the real estate and financial services sector. In his role at First American RES, Dr. Cagan is responsible for analyzing real estate sales and price trends and communicating them to the media. He also works on improving automated valuation models and building new statistical and mathematical products. Since joining First American RES in 2002, he has developed several patent-pending mathematical and algorithmic inventions, built multiple analytical products, and written numerous technical papers, presentations and studies. Dr. Cagan earned his bachelor's, master's and doctorate degrees in mathematics from the University of California at Los Angeles.