Where Buyers Are Cashing In! The Top 10 U.S. Markets for Flipping
October 14, 2019
These days, it seems like just about everyone is either getting into the real estate game or wistfully dreaming about it. The popularity of HGTV has made many folks believe they can pocket some serious cash renovating an old home and then reselling or renting it out for sweet, sweet profits. Easy!
But then there's a pesky little thing we call "reality." To truly make bank in the housing investment game, you need to pick your markets carefully—especially since profits just about everywhere are being squeezed by high home prices, a shortage of affordable older places for sale, and cutthroat competition from legions of buyers and fellow investors.
Realtor.com®'s bargain-happy economics team found America's hottest real estate markets for investors, the cities where the highest percentages of home sales are for flipping or renting out, usually after a rehab. They tend to be more modestly priced cities in the Midwest and South, areas that have a larger selection of older, lower-priced homes, strong economies, and population growth creating demand for housing.
"Most of these midsized cities have strong job growth and lower home prices and a more relaxed lifestyle attracting millennials," says Senior Economist George Ratiu of realtor.com.
Real estate investors purchased 7.7% of all homes in the second quarter of this year—a slight 0.6% bump from a year ago, according to a realtor.com analysis. (In June, about 3.7% of all home sales were flips.) Overall, that's the most speculation the market has seen since the nation was still clawing its way out of the Great Recession in 2013.
"The return remains attractive," says Ratiu. Flippers raked in a typical profit of $62,700—not including the money they poured into fixing up the property—in the second quarter of 2019, according to real estate information firm ATTOM Data Solutions. That typically translates to profits between 20% and 33% of the home's value after repairs.
Our rankings looked at the number of investment home sales in the 100 largest metropolitan areas, which include the main city and surrounding towns and cities. We defined these purchases as ones with a corporate or nonindividual's name on the deed (investors often buy property under company names; this does leave out some mom and pop investors). We also included flips, which were defined as homes that were sold and then resold within 12 months for a profit.
OK? Ready, set, flip!
Median home sale price: $189,900
Percentage of investment property sales: 18.8%
The St. Louis area's abundance of older, lower-priced homes in need of an update, many to the north of the city, have made it an appealing destination for both flippers and landlords.
"Twenty years ago, [real estate investors] were all locals," says broker and landlord Dennis Norman of MORE Realtors. Now, "we have a lot of investors from California, from Colorado, and even international investors."
Flipping is more common in homes in the $175,000-plus range, while many of those listed for $125,000 and less are being turned into rentals, says Norman.
Folks can scoop up two- or three-bedroom homes built in the 1950s and 1960s in these lower-income communities starting as low as $15,000 to $20,000 for a bank-owned fixer-upper. Investors will often sink another $15,000 to $20,000 into them to bring these homes, some of which were abandoned, up to city code. That can include replacing plumbing, electrical, heating, and cooling systems, and even installing a new roof in some cases.
Landlords can pick up a move-in ready, single-family rental in the $30,000 range and lease it out to Section 8 tenants for $750 to $800 a month, says Norman. But maintenance costs can be high in these older homes, and tenant turnover is high.
Median home sale price: $190,000
Percentage of investment property sales: 17.3%
Real estate investment is boffo in Birmingham, thanks to the affordable housing stock (although that ready supply is rapidly dwindling), above-average appreciation, and brisk sales. But unlike St. Louis, this market is mainly all about locals trying to make a few bucks.
"Birmingham is one of those markets that’s not really on the radar for those big multinational companies" or real estate investment trusts, says real estate and finance professor Alan Tidwell of the University of Alabama, in Tuscaloosa.
But with home price appreciation shooting up, it's profitable for flippers.
Many investors are zeroing in on towns and smaller cities not far from Birmingham's business district, such as Homewood and Mountain Brook. Hoover, which is farther out but near the interstate, has also become a popular destination.
“They have very good school districts and low crime and short commutes to downtown Birmingham where the jobs are," says Tidwell.
Handy buyers can score this three-bedroom, 1.5-bathroom brick ranchfor $100,000—if they're ready to get their hands dirty with some renos, that is.
3. Miami, FL
Median home sale price: $299,900
Percentage of investment property sales: 17%
Having the words "home flippers" and "Miami" in the same sentence is bound to give some folks Great Recession PTSD. Speculation in South Florida was rampant leading up to the housing bubble and subsequent crash.
Guess what? Investor activity in the Magic City is ticking up again, rising about 1.3% over the past year, according to the realtor.com analysis. (Relax, we're not seeing a ton of subprime mortgages this time around.) And the new investor boom is just the beginning, says Southern Florida real estate analyst Jack McCabe.
While many of the big financial companies, hedge funds, and other institutional investors left the market over the past few years as dirt-cheap foreclosures and short sales dried up, mom and pop investors have emerged to pick up the slack, he says. And they're increasingly looking to the single-family homes to flip.
"We're on the verge of the next big wave of flipping," says McCabe. "They're able to make some nice profits [on single-family homes] because prices have shot up so high."
Meanwhile, builders went a bit overboard putting up scores of new condo developments in the Miami area. So prices on the new construction, as well as the older buildings, are falling. This 400-square-foot studio in South Beach, just a few blocks from Ocean Drive, is listed for $129,000. Airbnb, anyone?
4. Tampa, FL
Median home sale price: $230,000
Percentage of investment property sales: 16.2%
It's no mystery why Tampa is popular with investors. The smaller, waterfront city sits boasts great weather, plenty of gigs, no state income tax, and—wait for it—reasonable home prices and costs of living. Take that, pricey Southern Florida!
This may explain why the Greater Tampa area has the third-highest percentage of home flips of all of the metros on our list, making up about 16.5% of home sales in the metro.
Those looking for a fixer-upper may want to consider this three-bedroom, one-bathroom foreclosure going for $84,900. The century-old bungalow has a fenced-in backyard and is near downtown Tampa and major roadways.
5. Memphis, TN
Median home sale price: $206,300
Percentage of investment property sales: 16.1%
In the past few years, Memphis has become known as "flip central" to investors. The area's older, lower-priced homes for sale and strong rental market are like a siren song to investors hailing from across the U.S.
"We have a lot of demand for good houses," says flipper and real estate agent Pablo Pereyra, of Casa America Realty. "You can buy a beat-up, old place, fix it up, and the demand is there."
He and his partners recently purchased a three-bedroom, two-bathroom house in Central Gardens, a historic Memphis neighborhood, for $172,000. They plan to sink about $30,000 to $35,000 in the home by updating it and adding a half-bathroom. When it's done, they plan to list it between $265,000 and $300,000.
But it's becoming harder to be a flipper in Memphis as more buyers are competing for a limited number of ultracheap homes, says Pereyra. That's an impediment to local, mom and pop investors who are increasingly getting into the game.
This two-bedroom, two-bathroom house already has tenants—a bonus for hands-off landlords. The charming, brick house with a fenced-in backyard, laundry room, and fireplace is listed for $89,900.
Median home sale price: $301,800
Percentage of investment property sales: 15.7%
Flippers are omnipresent in Sin City and its surroundings once again, scooping up the area's lower-priced homes. That's why prices are shooting up 16% year over year.
"We have investors who are not doing as well in other places deciding to come here—it's greener pastures," says real estate agent and property manager Bryan Kyle, of First Serve Realty in Las Vegas. He and his wife own about a dozen single-family, rental homes.
As the foreclosures and short sales have largely dried up, many folks in search of a deal make lowball offers a bit farther out in the Las Vegas Valley and Henderson, NV. Anything built before 1990 is considered an "antique," Kyle says. Therefore it's prime for a flip.
And when it comes to flipping, "there's still plenty of meat on the bone," he adds.
There are also lots of rental opportunities. The city is filled with reasonably priced condos, townhomes, and single-family homes, especially when compared with nearby California. Buyers can scoop up one-bedroom condos with walk-in closets in gated communities offering clubhouses and pools, like this one-bedroom with a private patio priced at $110,000, and rent them out.
7. Phoenix, AZ
Median home sale price: $275,800
Percentage of investment property sales: 15.1%
Phoenix is known for its glorious, dry heat and sprawling retirement communities. Less known, however, is the metro's leading role in home flipping. About 19.5% of all sales are flips, up 4.5% from the same period a year earlier—the largest percentage of any of the metros in our top 10.
Home prices here shot up 11% over the past year. That's good news for investors who buy up the many single-story houses in neutral colors on the market that plan to relist within six months to a year.
Phoenix is experiencing some of the fastest-growing rent increases in the nation as well, according to Apartment List. Rents increased 3.8% annually, to $1,090 for a two-bedroom as of Oct. 1. To put that into perspective, the national increase was just 1.4%.
Investment properties are a bit pricier in this retirement hot spot, but bargains can be found, including this three-bedroom, two-bathroom house with a two-car garage for $185,000.
8. Orlando, FL
Median home sale price: $260,300
Percentage of investment property sales: 15.1%
Single-family rehabs have been "the bread and butter" for the flipper set in Orlando, says real estate broker John Murdock, of JMO Real Estate Group, in Winter Park, FL. But folks are also sinking money into duplexes, triplexes, quadplexes, all the way up to massive apartment complexes. He's seen more flipping than rentals in the market, although there are those who renovate homes to rent them out.
Murdock would know. He primarily works with Orlando-area investors and has worked on about 1,000 flips in the Orlando area over the past decade.
"The last three or four years has been all about investors," Murdock says. These days mom and pop investors are competing with hedge funds, foreign investors from places like China and South America, and real estate investment trusts.
Investors are on the prowl for anything under $150,000, built from the early 1990s to 2007 or so—which are getting harder to find as the market heats up.
"Most of the time it’s going to be an older house that’s been neglected heavily, possibly abandoned," Murdock says. "It’s going to require changing the layout.”
He'll generally spend $30 to $35 a square foot to do a full-home renovation.
"We're all fighting for the same properties," Murdock says.
9. Columbus, OH
Median home sale price: $223,000
Percentage of investment property sales: 13.8%
Like many of the other metros on this list, Columbus' affordable home prices, strong price appreciation, and stable economy have made it appealing to real estate investors.
The Ohio state capital was cushioned a bit from the past recession due to its many good government jobs and Ohio State University with its 68,000 students. All of those students, professors, and other workers need places to live!
That may explain why it had the fifth-hottest real estate market in the nation in August, according to a realtor.com analysis.
The city is filled with single-family homes under $100,000 that can be updated—or not—and flipped or rented out. This three-bedroom, one-bathroom house on a large lot is listed at $79,900.
Despite all the real estate action, the city isn't on the radar of most Americans "because we're in a flyover state and we're modest about what we do," says Mary Beth McCormick, executive director of the Center for Real Estate at Ohio State University.
10. Philadelphia, PA
Median home sale price: $275,000
Percentage of investment property sales: 13.6%
The Philly real estate market is heating up both for those searching for their forever homes and those looking for their next big way to make a buck. The number of investment sales jumped 2.2% from the previous year.
Investors are seeking out the area's many lower-priced homes, with price tags that appear positively modest when compared with other big, expensive Northeastern cities such as New York City and Boston.
But don't kid yourself that successful flips are a walk in the park here. Philadelphia's typical housing stock is nearly a century old—and many are in need of serious and costly TLC.
Investors can pick up an array of condos and row homes throughout the city for under $150,000. Those who don't mind putting in some elbow grease—um, lots of elbow grease— can score this three-bedroom, two-bathroom townhome in the Cedar Park neighborhood. With a front porch, hardwood floors, and an enclosed backyard, it's listed for a hair under $150,000.
Source: "Where Buyers Are Cashing In! The Top 10 U.S. Markets for Flipping" REALTOR.com (October 14, 2019) Clare Trapasso