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updated 4/11/2010 1:31:40 PM ET 2010-04-11T17:31:40

On an unusually hot March afternoon, the steps of the Maricopa County courthouse in downtown Phoenix fill with people in sunglasses, shorts and flip-flops whispering urgently into cell phones.

They are "flippers," here for the daily outdoor auction of foreclosed homes — bidding for themselves or clients who plan to buy houses cheaply and fix them up for a quick sale. And with the economy starting to percolate and real estate markets bottoming out, the auctions are drawing bigger crowds.

"A year ago, bums outnumbered bidders at the courthouse steps," says Sergio Rodriguez, who bought and sold 48 properties last year even as falling home values scared other investors away. "Now the bums are way outnumbered."

Improbable as it sounds, house flipping — that hallmark of American real estate mania — is making a comeback. All around the country, but especially in some of the regions hit hardest by the housing slump, investors are swooping in on distressed properties and banging them into shape for sale to first-time home buyers, vacation-home seekers, and people looking for rental income.

In Phoenix last year, the number of foreclosed homes that changed hands within six months of being purchased — the best statistical measure of flipping activity — increased 81 percent from the previous year, to 4,661, according to RealtyTrac, which compiles foreclosure data. Las Vegas flips rose 38 percent, to 8,042, in 2009; in Riverside and San Bernardino counties in California, they climbed 45 percent, to 17,203; in the Cape Coral, Fla., area, flips almost tripled.

This may look like another case of "here we go again," but flipping 2.0 has some important differences from the previous version.

In fact, flipping may now serve a constructive purpose, helping to clear out backlogs of foreclosed homes and stabilize distressed neighborhoods. "We're the good guys because the government doesn't have enough money to fix these homes up," says 42-year-old Phoenix investor Harry D'Elia.

Federal approval
Indeed, the government has given its seal of approval to house flipping, an activity it used to discourage. At the Federal Housing Administration, a one-year waiver of anti-flipping rules took effect Feb. 1, so borrowers can now get FHA financing to acquire homes from investors who have held title for less than 90 days.

"We do believe investors will play an important role in today's marketplace because they tend to be more liquid than first-time home buyers," says Vicki Bott, a deputy assistant secretary at the Housing & Urban Development Dept. in Washington.

As prices soared from 2000 to 2005, buying and selling homes for quick profits was such an obsession that it inspired cable television series including Flip This House on A&E and Flip That House on TLC.

"Everybody made money on the way up," says Richard C. Davis, who helped create Flip This House and appeared in its first season. When prices began to fall and credit tightened, speculators who bought at the top were stuck with houses they couldn't unload. Many lost homes to foreclosure; others are renting out their flips as they wait for values to rise. "Amateur hour is over," says Davis.

Some professionals who had the capital or nerve to ride out the lean years are still in the game. Rodriguez and his business partner, Brian Bogenn, have been flipping houses for more than six years. They survived by switching tactics. During the boom they bought most of their houses on the open market and could take their time with renovations. Now they buy cheap houses in foreclosure and patch them up quickly. "One of the reasons we're still doing it is that we keep changing as the market changes," says Bogenn.

Davis, CEO of Trademark Properties in Charleston, S.C., says he has flipped 25 homes since returning to the business in October. And yes, he's filming a new series about empty multimillion-dollar homes that he buys, repairs, and peddles for half what they might have fetched in the boom.

Newcomers to the game
The business is also attracting newcomers like Brandon Hunt, a 28-year-old Indiana native who used $600,000 in cash supplied by his father-in-law to buy four foreclosed Phoenix-area houses in the summer of 2008 — just before the boom went bust.

Hunt had a few nervous moments as the stock market plunged in the fall of 2008 and considered renting out the homes if he couldn't sell them. "I was like, 'Did I just get into having my father-in-law's money tied up in four rental properties?'" He staged the homes with tasteful art and furniture, including kitchen tables where he envisioned buyers signing contracts, and his patience paid off. By the end of the year he managed to sell all four for a small profit, two to first-time home buyers, one to a woman going through a divorce, and the fourth to a couple who were downsizing.

Despite the scare, Hunt was hooked. Backed by more cash from his father-in-law, he turned over 46 properties last year, netting about $1 million. He's found that some bargain hunters, rather than face the hassles of buying a foreclosure directly, are willing to pay extra for new granite countertops, stainless steel appliances, and a fresh coat of paint.

Patricia and Eric Mattingly, both 43, are typical Hunt customers. In late January they closed on a $355,000 two-bedroom ranch with a pool and guest house across from a golf course in the Del Norte Place historic district in Central Phoenix. Hunt, who paid $209,000 for the house at auction in September and spent six weeks renovating it, earned $50,000 on the deal. The Mattinglys didn't even know they were buying a foreclosure. "A lot of the other houses we were looking at in the historic district were very old and needed a lot of renovations," says Patricia Mattingly. "We walked in and we said, 'Oh my god, this is move-in ready.'"

In Hunt's hands, flipping is a high-speed, high-tech process. The morning after buying a house, he visits with a locksmith to secure it. He decides how many fans, light fixtures, and cans of paint, and what flooring supplies he'll need and plugs the info into a spreadsheet on his BlackBerry. He then e-mails the order to the local Lowe's home improvement store with an address and delivery date. The contractor arrives at the house the same day the supplies are delivered. The houses are typically ready to be listed two weeks later.

Foreign buyers
Flippers are finding they can sell to foreign buyers who see value in the battered U.S. market. Real estate agent Brad Cozza, who has flipped foreclosed homes in the Cape Coral, Fla., area to Israeli, German, and Spanish investors, says he got a lot of serious inquiries after making a presentation to 925 Israelis at a conference last month in Tel Aviv. The conference was organized by America Israel Investments, which buys foreclosed homes in Lee County, Fla., through auctions, short sales — in which the lender accepts less than is owed on the mortgage — and directly from banks. Edmon Mamane, the company's owner, said he pays $48,000 to $60,000 for homes, some of which were never lived in, and sells them to Israelis for about $80,000.

Dror Shlomi bought a 2,200-square-foot two-family house from America Israel Investments a few weeks ago for $79,000 in cash. The two families occupying the four-year-old property pay him a combined $1,300 a month in rent, which more than covers the $300 a month he lays out for management fees, taxes, and insurance. Shlomi says he is in the process of selling his 10 investment properties in Israel and shifting his focus to Florida. "Last year, prices in Israel went up and in the States they went down," he says. "So we decided this is the right timing to try to find interesting things in the U.S."

Will flipping once again become a national pastime? Some professionals say the opportunities are already shrinking.

"If someone is thinking about quitting their day job [to flip houses], they should think twice," says Robert Fahn, 50, who along with a partner has bought and sold 10 homes in the Sacramento area since last February. With all the newcomers bidding up prices, he says, margins are getting squeezed and "at some point the market is going to go away."

Even so, Fahn, who is scouting opportunities in Florida and Phoenix, says he is in it for the long haul. "This is not a get-rich-quick business," he says. "This is a grind-it-out business."

Copyright © 2012 Bloomberg L.P.All rights reserved.

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