When Are Real Estate Flippers Smarter Than the Crowd?

Abstract

Real estate flippers earn higher returns than average traders in the market. By intensively searching for dumb buyers or sellers, they buy-low and sell-high to earn a monthly return that is 6.0% higher over the market returns. Their excess returns are dictated by the spread of investors’ valuation. It is higher when prices are more dispersed and there are less comparable transactions. The effects are amplified in down markets. Due to flippers’ smaller comparative advantage in search at resale than at purchase, the resale premium contributes less to the excess returns than the purchase discount. The time-varying rental income forgone negatively affects flippers’ resale premium.

Keywords: Excess Returns; Trading strategy; Search; Real Estate

JEL Classification: G14; D83; R30