Flipping (Property) – Definition

Cite this article as:"Flipping (Property) – Definition," in The Business Professor, updated November 30, 2018, last accessed October 22, 2020, https://thebusinessprofessor.com/lesson/flipping-property-defined/.

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Flipping (Assets) Definition

Flipping is the technique wherein the asset holder buys the asset with the aim of selling it for quick profit. Generally, is a form of arbitrage. This is contrasted with buying and assets, holding it for long period, and then selling it to take advantage of price appreciation. The term is usually used in IPOs and short-term real estate transactions. Assets commonly bought for flipping include cars, concert tickets, cryptocurrencies, etc.

A Little More on What is Flipping Property

Flipping is mostly seen in real estate. It involves purchasing real property and selling it within a year to earn a profit. Real estate flipping happens in two manners:

  • the investors buy property in fast rising markets and resell it with zero or little additional investment; or
  • the investors works invests time and effort in enhancing the value or attractiveness of the property before selling it.

Flipping real estate is a tricky business. If the market conditions fluctuate before the property is sold, the investor may be left holding a depreciated asset. There is less risk in flipping renovated property, as the holder does not depend solely on property appreciation to make a profit.

A unique forms of flipping include wholesaling. Wholesalers purchases real estate with the purpose of selling it to another investor for a fixed fee or percentage. Their main business is to identify undervalued property that would be a great investment for flipping.

Another method of flipping is to purchase the outstanding debt on abandoned or upside down properties (properties where the mortgages and other liens are greater than the property value). The purchaser negotiated reduced prices to purchase the debts. As a result, she can consolidate all debts and sell the property for more value than she has in the property.

References for Flipping

Academic Research on Flipping

An empirical analysis of residential property flipping, Depken, C. A., Hollans, H., & Swidler, S. (2009). The Journal of Real Estate Finance and Economics, 39(3), 248. Beginning with a time-dependent definition of a house flip, this study examines flipping activity in Las Vegas from 1994 through mid-2007. Findings show that flip homes tend to be older and smaller than non-flip homes

Flipping in the housing market, Leung, C. K. Y., & Tse, C. Y. (2017). Journal of Economic Dynamics and Control, 76, 232-263. This paper analyses the concept of home flipping by middlemen and realtors. It examines the speed involved in the buying, flippig and selling process, and also analyses the rate of profit made by middlemen. Findings show that flipping generally occur in sluggish and tight markets, but never in moderate markets under normal circumstances. It also shows that flipping which takes place in a fast and liquid market most likely results to loss.

Flip that house: visualising and analysing potential real estate property flipping transactions in a cold local housing market in the United States, Anacker, K. B., & Schintler, L. A. (2015). International Journal of Housing Policy, 15(3), 285-303. The purpose of this exploratory case study is to use social network analysis techniques to visualise and analyse potential real estate property flipping transactions which may be a type of investment in Mansfield, OH. The paper takes a look at how homebuyers and grantees of mortgages relate to each other, utilising Gephi and UCINET software for visualisation purposes. Findinngs show that almost 50% of the mortgage grantees are from Ohio, which runs counter to expectations based on the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. It also shows that the topological structure is highly fragmented.

The role of house flippers in a boom and bust real estate market, Lee, J. M., & Choi, J. W. (2011). The Journal of Economic Asymmetries, 8(2), 91-109.

Flips, flops and foreclosures: anatomy of a¬†real estate¬†bubble, Depken, C. A., Hollans, H., & Swidler, S. (2011). Journal of Financial Economic Policy,¬†3(1), 49-65. This paper aims to examine the anatomy of a real estate bubble. In the process, the paper identifies three phases of the market’s evolution: flips, flops and foreclosures. An examination of the Las Vegas real estate market illustrates the three phases.

Flip that house: visualising and analysing potential real estate property flipping transactions in a cold local housing market in the United States, Anacker, K. B., & Schintler, L. A. (2015). International Journal of Housing Policy, 15(3), 285-303. The purpose of this exploratory case study is to use social network analysis techniques to visualise and analyse potential real estate property flipping transactions which may be a type of investment in Mansfield, OH.

Flipping¬†in the Housing Market‚ÄĒExtensions and Robustness, Leung, C. K., & Tse, C. Y. (2016). In this technical note, we study four extensions to the ‚ÄúFlipping in the Housing Market‚ÄĚ model and check how the major results may or may not be robust to these extensions.

House¬†prices and monetary policy: A cross-country study, Ahearne, A. G., Ammer, J., Doyle, B. M., Kole, L. S., & Martin, R. F. (2005). International finance discussion papers,¬†841. This paper examines periods of pronounced rises and falls of real house prices since 1970 in eighteen major industrial countries, with particular focus on the lessons for monetary policy. Results show that real house prices are pro-cyclical–co-moving with real GDP, consumption, investment, CPI inflation, budget and current account balances, and output gaps.

Flipping¬†Houses, Michalski, E.¬†Flipping Houses¬†(Doctoral dissertation, Colorado State University-Pueblo. Library). The concept of ‚Äúflipping‚ÄĚ houses is a trend that has increased in popularity as a source of income in the United States. This paper will discuss the housing market, as well as the current industry related to ‚Äúflipping‚ÄĚ houses. Included will be the basic definitions of terms used in the industry, as well as several interviews conducted from experienced house flippers in Colorado. This paper concludes with a hypothetical market plan.

Monetary policy and house prices: a cross-country study, Ahearne, A. G., Ammer, J., Doyle, B. M., Kole, L., & Martin, R. F. (2005). This paper examines periods of pronounced rises and falls of real house prices since 1970 in eighteen major industrial countries, with particular focus on the lessons for monetary policy. Findings are that real house prices are pro-cyclical Рco-moving with real GDP, consumption, investment, CPI inflation, budget and current account balances, and output gaps.

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