Is Your Market Good for House Flipping?

With an average ROI of 33.5%, house flipping has become an increasingly popular way to invest in real estate. Becoming a house flipper comes with many benefits, including:

  • Impressive ROI potential

  • Short-term returns

  • Control over your projects

  • The satisfaction of contributing to the revitalization of your community

But, as with all real estate investments, your ROI potential greatly depends on your local market. In this article, we’re going to explore the signs of a market primed for flippers so you can decide if flipping makes financial sense.

Here are three signs that flipping is a good investment in your market.

1. There Are Opportunities to Purchase Distressed Homes in Your Market

The purchase price of your property will likely be the biggest expense of your flip. So if you can get a deal on a distressed property, you’ll increase your profit margins. 

Foreclosures are an excellent example of a distressed property. Banks have no interest in holding residential property, so when they foreclose on a home, they want to resell it as quickly as possible. But these homes often come with some deferred maintenance that prevents the average homebuyer from making an offer. These properties are ideal for flippers who plan to renovate the property anyway. 

Foreclosures are up 153% year-over-year as of July 2022, mainly because pandemic-era foreclosure moratoriums have expired in the past year. This represents an incredible opportunity for real estate flippers. 

But foreclosures aren’t your only option for distressed properties. Any property with exceptionally motivated sellers can be considered a distressed property. The current owner might prefer a quick sale because of a pending foreclosure, bankruptcy, or divorce, for example. You can find sellers in these positions through public records.

By contacting the owners early, you can negotiate a deal before the listing hits the market. This strategy allows you to minimize competition from other buyers and potentially get the purchase price under market value!

2. Your Market Is Growing

Market growth can be measured in multiple ways, including:

  • Population growth

  • Job growth

  • Home value growth

Market growth is a good sign of a favorable flipping market because it indicates housing demand. More jobs and a greater population mean more qualified buyers to purchase your flip. And growing home values means your property is appreciating quickly, even without all the value-add from your renovation. 

Cities in Texas, Florida, and Arizona have seen the greatest population growth since the pandemic, according to US Census data. And with the increase in demand from newcomers, it’s no surprise that cities like Tampa, Phoenix, Miami, and Dallas have also seen the greatest home value increases in the country.

All of this demand will likely mean more competition and higher acquisition costs when you purchase your flip. But it also increases your buyer pool and sales price when you go to sell.

3. There Is Low Housing Inventory

When fewer homes are available for sale, buyer competition increases. According to a report by Forbes, inventory is exceptionally low across many cities in Colorado, California, and Washington. The low inventory is the result of multiple factors, including:

  • High buyer demand

  • Lack of new construction

  • Geographic barriers

  • Single-family zoning laws that promote low population density

  • Seniors opting to age in place rather than relocate to a retirement community

Low inventory makes it harder for flippers to find deals, but it also provides better potential returns because the demand for existing inventory is so high. By seeking out off-market distressed properties, you can find opportunities that fall outside of the listed inventory.

Other Market Factors to Keep in Mind When Flipping

In addition to the three indicators of a good flipping market that we’ve just discussed, here are a few more factors to consider for a successful flip.

  • Availability of labor and materials. Having the skilled workers and building materials you need for the renovation is crucial to completing the flip on time. 

  • Low cost of labor and materials. The lower your labor and materials costs, the greater your profit margin.  

  • Seller’s market conditions (or balanced conditions). While flips can be successful in any market, fast-moving seller markets are ideal. This is because you’ll likely have a strong pool of potential buyers, which leads to a quick sale. Balanced markets, in which neither the buyer nor seller have the upper hand, can also foster solid flipping deals.

When the factors above are combined it makes for a very strong market for house flippers. Many markets won’t check all the boxes, but as long as some of the bases are covered, you have an opportunity to make a healthy profit with a house flip! 

And don’t forget, if you have your real estate license, you can represent yourself in the purchase and sale of your property. By saving on real estate agent fees, you can add substantial padding to your profit!

Want to get your Real Estate License? Begin your Pre-Licensing Course today!

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Updated 9/15/22

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