House flipping can be a very lucrative business, either as a full-time career or a side hustle. The data bears this out. During the first quarter of 2020, the average house flip in the U.S. generated $62,300 in gross profit (the difference between the median sales price and what an investor paid for the property), according to ATTOM Data Solutions' Home Flipping Report. That's up from $60,675 in the year-ago period. As long as a house flipper kept their renovation expenses, carrying costs, and closing costs below their gross profit number, they made money on their flip.
Here's a look at several different data sets on house-flipping profitability that shines a spotlight on the metros that offer real estate investors some of the best opportunities to flip houses profitably.
Cities with the highest average gross return on investment
One key ingredient for a house flipper to consider is the overall profit potential of a market. Here's a look at the top cities for flips as measured by the percentage increase of the value of a flipped home (i.e., the sales price divided by the purchase price):
Several cities tied for the lead in generating the highest percentage increase between what a flipper paid for a property and their final selling price. Pittsburgh was among those leaders. According to ATTOM Data Solutions' House Flipping Study in December of 2019, Pittsburgh flippers improved their after-repair value by an eye-popping 132.6%. A major contributing factor is the city's low average home price value, which Zillow (NYSE: ZG) estimated was $179,972 in mid-2020.
Another factor driving the increase in gross profit is rising home prices in many of these markets. According to Zillow, in 2019, home prices rose in Cleveland (up 8.8%), Pittsburgh (up 5.5%), Philadelphia (up 5.4%), Columbia (up 2.7%), and Baltimore (up 1%). Only Wilmington saw a decline in home prices (down -2.7% year over year, according to Zillow).
Five cities where flipping gross profits are rising fastest
Another key data point for house flippers to consider is markets where gross flipping profits are expanding. Here's a look at five flipping hotbeds where gross margins are rising fast:
|City||Year-over-year increase in gross profit|
|San Antonio, TX||36%|
|San Diego, CA||20%|
|Oklahoma City, OK||18%|
One reason home flipping gross profits are on the rise in these areas is that homes are relatively inexpensive while values are rising fast due to population growth. For example, according to Zillow, the median home price in Dallas, TX, was $233,148 in early 2020, while property values surged 7.5% in 2019. Meanwhile, the Dallas metro area's population has been growing at a brisk pace -- it added about 130,000 new residents in the past year -- thanks to a strong job market, which is also helping drive home prices higher.
Meanwhile, metros like Oklahoma City, OK, have some of the most affordable homes in the country. The median home price in that city was $128,000 in 2019. Values there are growing fast, up nearly 7% year over year, which has helped boost gross flipping profits.
Even large metro regions like Chicago can be a good place for flippers looking for outsized profit potential. The gross profits in the area have jumped about 20% in the past year, driven by a 5% increase in home values. Flippers can find deals that can boost their profits by looking for lower-priced homes, with many in the region fetching less than $250,000.
Cities with the lowest renovation costs
Another crucial factor in home flipping profitability is the expense of completing the home remodel, which varies significantly by metro region. Here's a look at the cities with the lowest average remodeling costs:
|Ranking||Lowest average kitchen remodeling cost||Lowest average bathroom remodeling cost||Lowest average full-home remodeling cost|
|#1||Mobile, AL||Fort Wayne, IN||Little Rock, AR|
|#2||Des Moines, IA||Modesto, CA||Memphis, TN|
|#3||Las Vegas, NV||El Paso, TX||Des Moines, IA (Tied Third)|
|#4||Jackson, MS||Las Cruces, NM||Cedar Rapids, IA (Tied Third)|
|#5||Fort Smith, AK||Greensboro, NC||West Valley City, UT|
Cities with lower home renovation costs can be great places for home flippers because they'll spend less of their gross profit on remodeling, which increases their net profit potential. One of the highest costs a real estate investor typically incurs is renovating a kitchen. According to Home Advisor, the average cost of a kitchen remodel in the U.S. was $25,140 in mid-2020, depending on size, changes to the layout, and quality of the materials.
However, in places like Des Moines, IA, kitchen renovation costs are much lower. According to Manta.com, homeowners in that city paid an average of $24,061 for their kitchen remodel in 2019. That lower big-ticket renovation expense helped make that city's total rehab costs among the cheapest in WalletHub's ranking.
Given the lower renovation costs in these cities, house flippers can earn high net returns in these markets if they can buy a house to flip at a lower price point.
Five house flipping markets that stand out
Meanwhile, several cities with high gross profit percentage increases or growth rates also boast lower renovation costs. Here are five standouts from WalletHub's rankings on remodeling:
|Cities with the top gross profits||Renovation & remodeling costs ranking|
|Oklahoma City, OK||18|
|San Antonio, TX||27|
Oklahoma City stands out as one of the top markets for house flipping. Not only are gross margins rising due to home price appreciation, but flippers in that city will incur much lower renovation costs than many others. San Antonio also stands out for its combination of gross profit growth and lower average remodeling expense. Meanwhile, Columbia offers house flippers a compelling potential return profile thanks to the substantial increase between the purchase price and after-repair value as well as its below-average renovation price tag.
Flippers must keep both upside potential and costs in mind
House flippers need to consider several factors when evaluating a market to flip homes. On one side of the coin, they need to assess a market's upside potential by looking at regions where they can earn outsized gross profits. They should pay particular attention to where they're rising fast because it suggests there's less competition for purchasing properties. Meanwhile, flippers also need to keep renovation and other costs in mind since they could eat away at a significant portion of the gross profit if they're not careful. Because of that, the top cities for flipping are markets with the most attractive combination of gross profit potential and lower remodeling costs, since they offer investors the best opportunity to make a lot of money on their flip.
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