House flipping can be a very lucrative real estate investment strategy, either as a full-time career or a side hustle. This is proven by ATTOM Data Solutions’ US Home Flipping Report for Q1 of 2020. According to the report, the gross profit on a typical home flip (the difference between the median sales price and the median paid by investors) increased nationwide in the first quarter to $62,300, up from $60,675 in the first quarter of last year. This translates into a 36.7% return on investment compared to the original acquisition price! Although this is down from a 40.9% ROI a year earlier, investors in the best cities to flip houses are still making hefty profits.
It makes sense, therefore, that many are still in the house flipping business. According to the same report, the number of single-family homes and condos which were flipped during the first quarter of 2020 represented 7.5% of all home sales in the US. This is up from 7.3% a year ago and signifies the highest level since the second quarter of 2006. Home flipping rates are also up in 87% of local real estate markets. For successful house flip projects, however, you must know the best cities to buy and flip houses in the US. Luckily, there are many cities that stand out and offer investment opportunities for house flippers. Keep on reading to explore these cities.
Related: How to Flip Houses for Beginners: 8-Step Guide
How to Identify the Best Market for Flipping Houses
Fix and flips are not successful in just any market. Knowing how to analyze the real estate market is crucial for those who want to find the best cities to flip houses and profit from this activity. Real estate investors must find certain trends in the markets to determine whether or not it makes for a good place for house flipping. Here are the general criteria that flippers consider to identify the best cities to buy a house to flip:
- Homeownership rate: This shows how many households own their homes as opposed to renting. House flipping makes sense in areas where people have the power to buy their homes. Cities with low ownership rates, on the other hand, attract renters. So, the chance of flipping houses for a living there is low.
- Median household income: This defines the purchasing power of families in a specific area. The more money households make in a given state, the higher your chances are for selling investment properties to them. Thus, the best states to flip homes are those with higher median household income.
- Home value: Flipping real estate can generate more profit in cities where average home prices are high. In other words, cities where homes are worth more. This indicates that the demand for housing in that market is high. This also improves your chances of selling a flipped house there.
- Median monthly housing costs: This is an important factor for two reasons. First, families prefer buying where costs aren’t soaring (it’s a logical financial decision). Second, it affects your costs while flipping the house. The lower the costs, the better the chances of making a bigger profit. So, the best cities to flip houses have low housing costs.
- Average listing and sale price: This shows your profit potential from flipping real estate. The average listing price is how much money sellers expect for their homes. By contrast, the average sell price is how much homes actually sell for. The best housing markets in the US for flippers have a reasonable ratio of average listing and average sell price.
- Average home remodeling costs: This information is vital for house flippers. It doesn’t do well if you find a good deal only to spend thousands of dollars on remodeling – especially in cities with a low average sale price. To make money flipping houses, you need to fix properties for a reasonable cost.
- Average time to sell: After you’re done remodeling the house, you’re responsible for its monthly costs until it sells. As a result, the longer a flipped house stays on the market, the more money investors lose. States and cities in the US where new listings get sold faster are, therefore, qualify as the best for flipping real estate.
Related: Flipping Houses for Beginners: What You Need to Know Before Starting
All of these factors will have an impact on your bottom line for a house flip project. Naturally, areas with higher potential profits and returns are more attractive to investors. However, keep in mind that this also creates competition for the available inventory of distressed properties to buy and flip. Now, let’s take a look at the best cities to flip houses in 2020!
Cities with the Highest Average ROI
For many real estate investors, the key factor that determines the best cities to flip houses is the overall profit potential of the market. According to ATTOM Data Solutions’ House Flipping Report, several cities took the lead in generating the highest ROI in terms of what flippers paid and their final selling price. Major contributing factors are the low average home values and the rising home prices in many of these markets. This allows investors to get a high after repair value (ARV) and, thus, a high ROI. Here are the best cities to invest in fix-and-flips for a high ROI in 2020:
- Pittsburgh, PA
- Cleveland, OH
- Wilmington, DE
- Philadelphia, PA
- Columbia, MD
- Baltimore, MD
Cities Where Profits are Rising Fastest
Another real estate data for house flippers in the US to consider is where gross flipping profits are expanding. Typically, profits grow in markets where properties are relatively affordable and the population is growing. Population growth will drive home prices and values higher which, in turn, will boost gross flipping profits. So where can flippers in the US housing market 2020 find the most profitable real estate deals? Here are the 5 best cities to flip houses where gross profits margins are rising along with their year-over-year increase in gross profit:
- Dallas, TX: up 38%
- San Antonio, TX: up 36%
- San Diego, CA: up 20%
- Chicago, IL: up 20%
- Oklahoma City, OK: up 18%
Related: Invest in 2020’s Fastest Growing Cities in The US
Cities with the Lowest Renovation Costs
An important factor to understand how to flip houses for a profit is the costs and expenses needed to complete the home renovation. Expenses of remodeling properties vary significantly by metro or by city. As previously mentioned, it’s best to flip houses in cities with lower home renovation costs. House flippers in these cities spend less on remodeling which, as a result, increases their potential profits. This is especially true if they can find houses to flip at a lower price point. Here are the best cities to flip houses in the US with the lowest average remodeling costs in 2020:
- Little Rock, AR
- Memphis, TN
- Des Moines, IA
- Cedar Rapids, IA
- West Valley City, UT
The Bottom Line
As you can see, there are several factors that real estate investors consider when looking for the best cities to flip houses and make a profit. They have to study markets’ growth potential in order to identify areas where they earn a good profit. Not only that, but they also need to keep renovation costs and other expenses in mind because, if you’re not careful, they could eat away a significant portion of your profit. So as long as you find profitable locations and keep your expenses in check, you’ll be able to find the best house flip opportunities and maximize your return on investment.
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