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New real estate trend: flipping luxury homes

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The Star Tribune reports on a new trend in real estate: high-end house flipping. Realtors say the time is right for investors who can afford it to stop putting their money into fixer-uppers, and start investing in luxury homes.

As an example, the paper cites listings like this one in Minnetonka, a 4-bedroom 7,750-square-foot home with indoor and outdoor pools, and a list price of $1.495 million.

“Five years ago, nothing was selling in the upper bracket,” said Greg Lawrence, owner of Home Avenue. "But now listings and pending sales for million-plus homes in the western suburbs are up, and short sales and foreclosures in that category are now rare. “

A recent report from RealtyTrac shows a steep drop in the number of single-family home flips in 2013. Meanwhile, high-end flipping (homes priced at $750,000 or more) rose 34 percent. Most of these are taking place on the coasts, but data show the trend alive in the Twin Cities too.

“That’s definitely what we’re seeing,” said broker Ryan O’Neill of ReMax Advantage Plus. “Early on, as the market really crashed, a lot of people were gobbling up bank-owned inventory. But there’s only so much of that. A lot of those have gone through the pipeline.”

According to The Skinny, a blog for real estate insiders, home prices are up compared to a year ago, with foreclosed homes making up a declining percentage of all sales. Homes are selling at the quickest pace in seven years, spending an average of 75 days on the market, with sellers receiving the highest percent of what they're asking, an average of 95.8 percent.

“The sharp rise in high-end flipping indicates there is still good money to be made for flippers willing and able to take on the additional risk of buying and rehabbing more expensive homes,” said Daren Blomquist, vice president at RealtyTrac, in a release.

That means investors need deeper pockets and a big appetite for risk. The new trend leaves small investors behind.

One of the risks is investing too much in a luxury property.

“When people are buying that kind of property, a lot of them say, ‘I’d like new construction, to pick it out myself, ’ ” said O'Neill.

“It can be a losing proposition if a person understand the three rules,” he said. “No 1. Buy it right. No. 2. Know how much you need to put into it. And No. 3, know what it will sell for.” The last rule is especially tricky because sale price is a moving target. “The market is continually shifting.”

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