With Profits Flopping, These Are the Best (and Worst) Places for Home Flippers

Dated: November 3 2021

Views: 79

With seemingly endless news coverage of this unprecedented, white-hot housing market and oodles of pandemic-induced free time to stream HGTV or Discovery+, it may seem like a no-brainer to get in on the home-flipping game these days.

Given sky-high demand and rapidly rising prices, flippers should be having their best year ever. Right? After all, median list prices have risen 13.7% since the beginning of this year, according to Realtor.com® data. And they’re continuing to rise. 

But not so fast. These high home prices, combined with a record-low number of homes for sale and rising construction and appliances costs, are burrowing into flippers’ bottom lines. For flippers, it is truly the best of times—and the worst.

While the number of home flips has reached record levels, profits are shrinking, according to a Realtor.com analysis of deeds records. That’s why the data team wanted to take a look at where flippers can still make a good return on their investment—and where profits have dropped so much that it may not be worth their while.

Most flips are happening in the South and Sun Belt, as these areas have seen turbocharged demand due to the COVID-19 pandemic as more retirees and families moved to these lower-cost areas.

“There is opportunity, but you’ve really got to be smart in where you purchase and know that market,” says Charles Tassell, a real estate investor and chief operating officer of the National Real Estate Investors Association. “Finding the right spot is the hard part right now.”

There were more than 59,000 home flips across the U.S. from April to June, according to the Realtor.com analysis. That’s up 23% from last year when the pandemic halted construction and the highest level since 2005. But profits are down in more than two-thirds of the 150 largest metro areas.

The places with the best returns on investment are those that were popular well before the pandemic. Most are metros that had already been growing in population due to lower costs of living. Buyers in those places are on the prowl for turnkey homes. So those who can’t find—or afford—new construction often opt for a cheaper flipped property instead.

On the (sorry) flip side, the places that are the least profitable for investors are those where prices—and competition for new homes—are just too darn high to eke out an easy profit on a resale.

From April to June of this year, flippers made the lowest profits since 2008, earning about 43% more than what they originally paid for the home. But that doesn’t take into account the cost of construction work, materials, appliances, etc. Typically, flippers seek a return on investment of 50% or more.

“The overall cost of renovation projects has gone up substantially, and that’s also impacted profitability,” Tassell says.

We looked at the median profit for flips in the 150 largest metropolitan areas compared with the same time a year ago. To be included, metros had to have had at least 50 flips from April to June, according to the latest data available. A home flip is defined as the same property resold within 12 months of the last purchase. Metros are made up of the main city and surrounding towns, suburbs, and smaller urban areas.

So which are the metros where homes are poised to flip—and which are the ones where they’re primed to flop? Let’s take a look!

Best places to flip a home

1. Columbia, SC

Median list price in September: $275,000

Median profit on a flip: $61,667

Median profit percentage change: 7.9%

Demand is steamy hot in South Carolina’s capital, as retirees and people who can work from anywhere are flooding the market seeking out more affordable housing. While Columbia may not get as much love as beachy Charleston, there are still plenty of things to do here. The University of South Carolina brings in a steady stream of students, and there are plenty of restaurants. (The median list price here is about $200,000 less than Charleston’s $477,750.) 

Lower taxes and reasonably priced homes are particularly attractive to young families and retirees. People from New York and New Jersey are increasingly calling Columbia home, and older folks who don’t want to pay Miami prices are choosing to spend their golden years here. 

But the growth in Columbia isn’t a new phenomenon. It was listed as one of the hottest markets in 2020, and a spike in population means builders have been breaking ground on tons of new construction. That’s offsetting inventory shortages that are happening in the rest of the country, so flippers have plenty of older properties left to fix up. They can still get them dirt-cheap and turn them around for a profit.

“A lot of these houses we buy are wrecks,” says Lance Woodley, a home flipper, broker, and co-founder of SC Homes and Land Realty. “They haven’t been updated or anything in years. Some of them you go in and can’t believe people actually lived there.”

2. Phoenix, AZ

Median list price in September: $475,000

Median profit on a flip: $85,500

Median profit percentage change: 7.7 

Phoenix is bucking the national trend of shrinking profits. Profits on flips here are up 7.7% since last year as buyers from California and elsewhere have been looking to decamp to the desert. It’s emerged as one of the nation’s biggest real estate hot spots for families jonesing for dry heat.

Little known fact: The Phoenix metro area leads the nation in home flipping. It had the highest number from April to June as buyers, especially retirees, are looking for turnkey ready homes. Major construction of housing developments and retirement communities in recent years is also helping ease the squeeze on inventory. And that gives flippers some room to scoop up older homes and resell them once they’ve been fixed up.

Buyers here want homes to be as low maintenance as possible, a boon for flippers. A three-bedroom home that was sold last year for $320,000 is now back on the market for $395,000 after some updates.

3. Dallas, TX

Median list price in September: $396,500

Median profit on a flip: $71,383

Median profit percentage change: 6.6%

Dallas has seen a slew of new residents in recent years as big companies like Toyota are relocating and expanding their presence here. Lots of relatively inexpensive land combined with builder-friendly laws and regulations mean builders have been busy working to keep up.

While prices have risen over the past year or so, buyers still don’t need to be millionaires to own new homes. Since competition isn’t as fierce for older homes that may need some work, flippers can get a fixer-upper for less than $150,000. They can check out this three-bedroom home in the up-and-coming Fair Park neighborhood.

4. Raleigh, NC

Median list price in September: $427,250

Median profit on a flip: $46,333

Median profit percentage change: 6.2%

The city’s strong economy and growing tech sector have caused the Raleigh metro area’s population to skyrocket over the past decade, growing 25% from 2010 to 2020, according to the most recent census data.

Builders have been putting up homes quickly so there’s not much of an inventory shortage as there is in other parts of the country. That’s good for flippers who can find homes in need of some TLC.

One neighborhood popular with flippers is Northeast Raleigh, where homes were built in the 1960s and 1970s and could use some work to bring them into the 21st century. This three-bedroom ranch built in 1965 is currently on the market for $229,900.

5. Columbus, OH

Median list price in September: $289,500

Median profit on a flip: $76,733

Median profit percentage change: 6.2%

With its affordable home prices, strong price appreciation, and stable economy, Columbus has long been appealing to real estate investors.

Ohio’s state capital has a steady pool of government jobs and Ohio State University, with its 68,000 students. All these workers, professors, and students need somewhere to live.

The city isn’t on the radar of most Americans, so competition for housing isn’t as fierce as it is elsewhere. Columbus proper is filled with single-family homes under $150,000 that can be updated and flipped or rented out for a nice profit. 

That doesn’t mean it’s easy with prices rising and fierce competition over homes, says real estate broker Olete Johnson, of Gene P. Johnson Realty. Johnson is based in the Columbus suburb of Reynoldsburg.

She says flips are appealing to buyers who don’t want to have to renovate a home themselves.

“They sure are looking for houses that are ready to move into,” says Johnson.

A two-bedroom, 1.5-bath starter home with tons of potential is on the market for just $70,000.

Got it? OK, now let’s take a tour of the dark side of profits—or lack thereof.

Worst places to flip a home

1. Chattanooga, TN

Median list price in September: $327,000

Median profit on a flip: $71,833

Median profit percentage change: -21.2%

Located about halfway between Nashville and Atlanta, Chattanooga is a cheaper alternative to both. The city has poured money into the downtown area, including a $120 million redevelopment of the riverfront.

Since that’s where everybody wants to be, a crop of new, high-end, single-family homes and townhouses has been built in the downtown area over the past few years. But high demand has caused prices to explode, putting homes out of reach for many millennials. Simply put: There just aren’t many low-priced homes left to flip.

As a result, buyers are moving to the suburbs to get a bit of a price break, but guess what? So are the flippers! And that increased competition means investors—and everyone else—have to pay more to get a cheap house.

2. Tulsa, OK

Median list price in September: $265,000

Median profit on a flip: $57,000

Median profit percentage change: -16.2%

 

To lure new residents, the city launched the Tulsa Remote program, which offers $10,000 grants to folks willing to move there. It was so successful, Tulsa launched a new program, the Remote Homeownership Initiative, which offers $10,000 lump-sum grants to new residents who want to buy real estate.

But all those new people are pricing out some Tulsa residents. Since the start of the pandemic, the number of properties for sale in Tulsa dried up, prices surged, and investors swooped in like the region’s red-bellied woodpeckers during a feeding frenzy.

People coming from the more expensive coasts can find serious deals on single-family homes, but there aren’t enough local buyers who can afford high-priced real estate. Because the area is still struggling economically, buyers and flippers are struggling to find affordable homes. Flippers who succeed will still eventually need to find buyers who can afford the newly renovated abodes.

3. Charleston, SC

Median list price in September: $477,750

Median profit on a flip: $86,159

Median profit percentage change: -16%

Historic Charleston is a tourist favorite. Many who have admired its cobblestone streets and stately pastel homes decide to stick around for good. There’s a sizable retiree population and lots of jobs in the military, defense, and aerospace sectors have also brought in younger folks and families.

Downtown Charleston is the most desirable neighborhood, but when buyers see what they have to pay, they may get some sticker shock. Classic Charleston Colonials usually start around $2 million and go well above that. Because of that, buyers are having to move to the suburbs where a three-bed, two-bath with a yard can be quite reasonable.

Increased competition and high demand for starter homes have driven prices further out of reach for both regular folks and investors. That’s meant that flippers aren’t able to make as much profit with these higher prices.

4. Grand Rapids, MI

Median list price in September: $317,500

Median profit on a flip: $60,600

Median profit percentage change: -15.1%

This former industrial town is now a Midwest hipster haven, and the ultrapopular Creston neighborhood was named the hottest ZIP code in 2019 by Realtor.com. In a bid to market itself toward young people, the city has made improvements to the downtown area and brought in more employment opportunities.

This walkable community is filled with cafes and local restaurants, so it’s popular with millennials. Loft condos specifically marketed toward younger buyers have sprung up in Grand Rapids, but they can easily go for $250,000.

Budget-conscious buyers are spreading out to the suburbs, but that’s generally where flippers make the most money. With both groups angling for the same homes, that’s discouraging first-time homebuyers.

Cheaper fixer-uppers can be found in up-and-coming neighborhoods like Alger Heights in the southern part of the city. But some locals are deciding to buy and fix up homes themselves, and that’s taking away from potential flips.

5. Sarasota, FL

Median list price in September: $472,500

Median profit on a flip: $67,800

Median profit percentage change: -15.1%

As housing prices have ballooned in Florida’s coveted Miami-Dade region, South Florida residents have either been priced out or decided to cash in and head west. Now areas like Sarasota are getting more expensive as demand has grown.

Local builders have been sweating it out to meet demand, but with a short supply of contractors, laborers, and materials, they can’t keep up.

“It’s a terrible time to buy houses as a house flipper,” says Paul Hart, a real estate investor, agent, and owner of Houses with Hart. “Prices are way higher than they’ve been, labor is tremendously higher. Because of supply and demand, it’s terrible.”

Some longtime flippers have even decided to sit out altogether, including Al Waters, a licensed real estate agent who used to flip properties in the area.

“The market is so strong and properties that go on the market are being snapped up so quickly, usually at or above asking price,” Waters says. “There’s very little opportunity for anyone to do any negotiations to leave any profit at the end.”

Source: Realtor.com by Elena Cox 

Blog author image

Bobby Nies

If you are looking to Buy or Sell you want to make sure you are not just another number to your Realtor. Yes, it is a Sellers Market but if you are selling your home, you want to make sure you get the....

Latest Blog Posts

The World’s Richest Athletes Earn the Cash To Buy Average-Priced Homes in Hours

This year, Lionel Messi, arguably the greatest soccer player of all time, left his former club F.C. Barcelona for Paris Saint-Germain. Like many a recent transplant, Messi decided to start life

Read More

Why the boom in US home sales is not a bubble?

The US housing market is still in a frenzy as pandemic-induced demand intensifies a longstanding housing shortage. In October, the number of existing homes sold across the country rose by 0.8% even

Read More

7 Credit-Building Myths First-Time Homebuyers May Hear (and Believe) Today

(Getty Images)People love to dole out unsolicited advice. Some of it is actually useful. Other tips you hear, though, may do more harm than good—particularly when it comes to your credit score

Read More

Should You Wait Until Spring To Sell Your Home? No Way! Why Winter Listings Rule Today

(Getty Images)Winter is typically a slow time for home sales, when sellers might wonder if they have any hope of finding a buyer. But will that be the case this winter?“Normally this is a

Read More