Have spoken with a bunch of people over the past few days who are involved in high-end home flipping.
This isn’t the kind of stuff that was going on in 2009-2012, where you could buy a foreclosed single family in say, Highland Park, for $400k, dump $50k into it, and sell for $550k.
Those deals are long gone.
What people are doing now is buying higher-end properties in the range of $1-2MM and then either tearing down and re-building or else doing a total re-model / expansion, and aiming to sell for $2-3MM.
There appear to be decent returns to this business. However, the risk is considerable, because:
- A lot of this stuff is going on, so the supply of homes in this price range is likely to expand rapidly; and
- In this price range, there is no way to get an acceptable rental yield if you are forced, for whatever reason, to hold the home
There’s one other reason I dislike this business: taxes. The IRS treats home flip profits as ordinary income. So your 20% return becomes 10% after tax. Not sure I love that risk-reward profile as an investor.