The new rules of house flipping

By Chris Taylor

NEW YORK (Reuters) - When the housing market went bust, house flippers went into hibernation. Now, as the recovery creeps along, bargain-hunters are once again looking for homes to fix up and resell for a quick profit.

Just take a look at the numbers. Home values are on the rise, with a year-over-year price increase of 11.6 percent, according to the National Association of Realtors. Inventory has cratered to levels not seen since 2005.

Irvine, California-based RealtyTrac, an online marketplace for foreclosure properties, says that flipping - defined as buying and selling a property within six months - rose for the second year in a row, up a slight 0.33 percent in 2012 after logging a 12 percent increase in 2011. Those deals were churning out real gross profits, at an average of $37,375 per transaction for all of 2012.

Today's flippers have learned some hard lessons. The housing crash of 2006-2011 wiped out more than $7 trillion in household wealth across the nation, according to data from the Federal Reserve. The fallout left countless speculators holding properties they could no longer move.

This time, homebuyers are being more selective - putting more money down and making calculated bets on smart renovations.

"There are fewer real estate investors now, compared to during the boom. But this time, they have really done their homework," says Andy Heller, author of "Buy Low, Rent Smart, Sell High: Real Estate Investing for the Long Run."

Here are a few tenets to hold close, as you tiptoe back into this dangerous game:

1. Pick your spots

The best places to flip in 2012 included Orlando, Florida; Richmond, Virginia; Tucson, Arizona; and Charlotte, North Carolina, according to RealtyTrac. Flipped homes in Orlando, for instance, were bought for an average of $100,397 and sold for an average of $174,895, for gross profits of almost $75,000.

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The new rules of house flipping