The secret to becoming a successful house flipper is not only knowing what investment strategy you want to follow but also how to spot the markets that are ripe for investment in the first place. In 2020, house flippers have earned solid gross profits on average, with most investors bringing in around $62,000 per completed project. But don’t let this average fool you; not every market will have the potential to be profitable, and it’s up to you to figure out which ones will.
The first step is to decide what type of real estate you want to invest in. Commercial real estate will have very different requirements to residential real estate, and the one you choose will have a significant impact on the level of profitability and active input needed. In this article, we’ll be focussing on the residential real estate side. The market you decide to buy into will affect this decision and others, such as what kind of buyers you’ll be dealing with, what renovations will be most suitable, and how long it will take to resell. That’s what makes choosing the right market to start with essential for success.
That’s why we’ve put together this quick guide to choosing the best markets for flipping houses, including what you need to know to identify new ones.
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Identifying Top Flipping Markets
Not all real estate markets are suitable for house flipping. One of the most essential skills a real estate investor should gain is knowing how to do an analysis of the local real estate market. Selecting the right market to invest into will come down to the investor’s ability to measure recent real estate trends and evaluate the relevant data. The best house flippers make use of a variety of indicators to choose the market with the most potential, such as:
- The rate of homeownership – how many properties in the area are owned outright versus being occupied by tenants? You want to buy into a location where individuals have buying power. Low ownership rates mean the market will be better suited to renters.
- The average income – knowing how much people in that neighborhood earn in general will help you determine your chances of selling property to them. For house flipping, the states you want to focus on are the ones that have a medium to high household income.
- The average home value – when you’re flipping houses, you will typically see the highest profits in locations where the home prices are high. This is a key indicator that the demand for housing is high and your investment will be more likely to sell.
- The median cost of living – the cost of living in the area you buy into will be an important differentiating factor when it comes time to sell the home. Buyers will want to stay in a place they know they can afford, and the cost of the area can have an impact on your flipping costs too.
- The typical sales price – knowing what the average listing price is for a property in the location you are considering will help you figure out how much you can make from the sale of a home there. For house flippers, it’s important to look out for options that pose a good ratio between the listing and selling price.
- The cost of remodeling – remodeling is one of the biggest expenses the investor is faced with, besides the cost to acquire the home. You’ll need to do your homework and find out what it will cost you to renovate and whether it will be beneficial or not.
- The average time at market – it’s essential for house flippers to resell their properties as quickly as possible in order to keep down carrying costs and maximize their earnings. You’ll want to figure out how long properties are listed for sale before being snapped up.
These factors and more can have an effect on how much you take home when all has been said and done. Bear in mind that as areas with high potential for profit are best for investors, you will likely have to compete with others that have come to the same conclusion. If you want your offer to have more gravitas, you can offer a proof of funds letter with it, showing the seller that you mean business and have the funds to back it up.
Highlighting Top Flip Cities
With all of the above information in mind, we can move our attention to the cities that are best to flip properties in right now. For residential, single-family homes, there are multiple locations that real estate investors should be aware of. It’s worth bearing in mind that you have the option to invest nearly anywhere, including out of state, and that includes some of these top flip cities.
Recent data published by ATTOM Data Solutions has highlighted multiple areas in the state of Pennsylvania that have been boasting great real estate investment results. Pittsburgh and Philadelphia both offer the potential for successful flips, featuring factors that investors know will make for a strong market. Real estate in Pennsylvania is more affordable than many of the other property markets around the country. The average property price in Pittsburgh is around $210,000 which is significantly lower than the national average of $284,600.
But aside from the home prices, what makes PA so good for house flippers? Single-family homes are sought after here, and the residential sector has remained relatively unscathed by the recent economic hardships faced by the country. The average amount made by house flippers in this state comes to $65,088 per flip, higher than the national average, which indicates that the chance of success is high.
Another city that has been pegged as a top flipping location is Cleveland in Ohio. Affordable and profitable are the words that come to mind for real estate investors that have bought and sold homes in the midwest. Cleveland is known for having some of the lowest average property prices in the US, with the median property price for a single-family home coming to $114,062. At the same time, flips in the city sell well and spend the minimum amount of time at the market.
Next on the list is the state of Maryland. Columbia and Baltimore MD may have large rental markets, but there is still plenty of potential for flipping success here. Maryland has a fast-growing house flipping market with property prices reaching $330,332.
Keeping Renovation Costs Low
The house flipping markets described above are a starting point for you, but it’s also important to consider other costs like those you’ll pay for renovations. Renovations will have varying costs depending on the city the property is located in, and to retain as much profit as possible you will want to make sure you keep these costs as low as possible.
Many house flippers do a certain amount of DIY-ing, but it’s important to only do the things yourself that you are comfortable with. Putting some paint on the walls or handling the garden is one thing, but it’s something entirely different to have to deal with plumbing or electrical issues.
The other thing that will have a huge influence on how much you spend is the renovations that you choose to undertake. Kitchen remodeling is one of the pricier projects that house flippers can decide to do, but it’s also one that is popular with buyers and adds a lot to your home value. Bathroom remodeling is another good option, and costs can be kept low here by using certain materials over others.
One place where costs should not be saved is when you are hiring a general contractor. If you want to stay on top of your renovation costs and timeline, you’ll need a reliable and experienced contractor on your side to ensure that everything is going according to plan.
Investing in house flips is a careful balancing act, even for more experienced real estate investors. On one hand, they are trying to find markets that offer good potential for investment right now, and on the other, they are looking at how they can earn the maximum amount of profits. The problem is these are not the only things you’ll need to consider when you’re planning to flip a house.
At the same time, it’s essential to think practically. You want to be sure that the area you buy into matches your needs. If you’re planning on overseeing the property flip yourself, you’ll want to think about how far you are willing to drive since you’ll be in and out regularly.
Ultimately, the best cities to flip houses in will have all the right ingredients; the potential of a good ROI, affordable renovation costs, and high demand for homes. One of the signs that a market is going to be suitable for flipping includes having good economic growth. You want to be sure that the local buyers are empowered to purchase real estate, and that you’ll be able to resell the property quickly once you’ve completed renovations.
One of the worst outcomes for a house flipper is having done all the work to acquire and renovate a property only to have it struggle to sell. Every day that the home goes unsold is a day the investor incurs additional costs that will affect the profits they take home when all is said and done.
There are multiple factors that house flippers take into account when analyzing the best markets for flipping houses. If you want to emulate them, you’ll need to learn how to identify growth potential using these characteristics and others that can indicate a promising return. Being a successful real estate investor will see you learn many skills, from accounting to handiwork and more, but above all, it will teach you how to recognize these markets and find some of the high ROI deals they hold.
New Silver has several tools available to help you find the best markets for flipping houses and evaluate your next real estate deal. You can use FlipScout to find high ROI properties around the country, and our Deal Analyzer to calculate the potential profits you can earn.