Ten Best Markets to Flip a House

June 11, 2014 by Thomas C. Frohlich

452395209While home flipping activity in the U.S. has declined over the past year, in many markets the practice is still quite popular and provides high returns. Home flippers generally buy a home, renovate and sell it within six months. In some of the areas where home flippers had the most profits, the housing market and economic fundamentals support this type of investment, according to a recent report from home data site RealtyTrac.

What makes a good home flipping market? According to Daren Blomquist, vice president at RealtyTrac, a good home flipping market depends on the availability of distressed inventory, generally rising housing prices, and a growing economy. High numbers of distressed homes allow flippers to buy at a discount, while a strong market and economic growth allow flippers to sell at a premium. Based on recently released data from RealtyTrac, 24/7 Wall St. reviewed the best counties for home flipping.

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The best markets for home flipping had to have had a relatively strong year in terms of generating returns for investors. Some of these markets were especially lucrative in the 12 months between April 2014 and March 2014. Notably, five of the best counties for home-flipping had gross returns on investment of more than 50% in that time.

Foreclosure rates in each of the best counties for home flipping increased measurably between the first quarters of 2013 and 2014, even as foreclosures declined nationwide. This means that home flippers could rely on a relatively sizeable inventory of distressed properties in these counties. Prince George County, Maryland and Campbell County, Kentucky had particularly dramatic increases, with the number of foreclosures jumping 136.8% and 238.5%, respectively.

Economically depressed areas, which tend to have low housing prices, often draw home-flippers. But these are not necessarily the best home-flipping markets. As Blomquist noted, the balance between low prices and a flipper’s ability to successfully sell a property is both crucial and delicate. “Investors in [the best] markets may have to go against the grain a bit by diving into a market where there are still a lot of foreclosures,” Blomquist added. But “going against the grain, when done with careful research, is often the best way to beat out the competition and maximize profits on flips.”

Residents of many of the best counties for home flipping also earned considerably less than the typical price of an area property. Buyers in nine of the 10 counties best for home flipping had to shell out at least two times the county’s estimated annual median income to buy a home. In Bergen and Montgomery counties buyers paid 4.5 and 3.8 times the estimated median household income for 2014, respectively, both among the highest ratios nationwide. This primarily reflects recent gains in home prices in these areas. Blomquist explained that higher-priced markets allow flippers to sell their refurbished properties at attractive prices relative to the rest of the market.

Notably, half of the best counties for home flipping were located in Maryland, where a majority of key home flipping components seem to converge. Not only is Maryland a market where foreclosures have been increasing in recent years alongside rising home prices, but also the state’s economy is also relatively strong. According to Blomquist, this is likely due in part to the strong presence of government and government-related jobs in the state.

In order to be considered as one of the nation’s best housing markets for home flipping by RealtyTrac, counties had to have 100 or more single-family home flips between April 2013 and March 2014. Additionally, average gross returns on flips in these counties had to exceed 30% during this period. Gross returns do not include the costs associate with renovating a home. Counties also had to have below average unemployment rates as of March, a major indicator of economic strength. Finally, counties also had to have had a year-over-year rise in foreclosure activity in the first quarter of 2014, indicating ample inventory of potential properties for home flipping. Data on median home prices by county, as well as flips as a percentage of sales, by metropolitan area, are also from RealtyTrac. Data on median household income represent RealtyTrac estimates for 2014.

These are the 10 best markets for home flipping.

10. Montgomery County, Md.
> Return on investment: 38.9%
> Increase in foreclosures: 8.6%
> Unemployment rate: 4.5%
> Number of flips: 179

Close to Washington D.C., Montgomery County is home to some of the nation’s most expensive real estate. Between April of last year and this March, a typical home in the area sold for $372,000. Expensive real estate markets are not necessarily preferred for home flipping. In fact, economically depressed areas tend to attract flippers more than other areas, but these are not necessarily good home flip markets. In the case of Montgomery County, flipping expensive homes has been quite lucrative. Flippers bought homes for $347,682 on average and sold them for $482,969 on average. The high prices are not particularly surprising. RealtyTrac estimates the area’s 2014 median household income to be nearly $100,000, among the highest of any market. Also, 4.5% of workers in the region were unemployed as of March, considerably better than the national unemployment rate of 6.7%.

9. Bergen County, N.J.
> Return on investment: 40.8%
> Increase in foreclosures: 43.2%
> Unemployment rate: 6.3%
> Number of flips: 114

The number of foreclosures reported in Bergen County during the first quarter of 2014 increased by 43% compared to the same quarter the year before, among the larger increases nationwide. More foreclosures means more inventory for home flippers. The county’s relatively high foreclosure rate may not be surprising, as area homes are often especially expensive. The median price of a home in the area of $390,000 was significantly more than four times the area’s 2014 estimated median household income, a higher ratio than most markets. Without accounting for repair costs, flippers were able to resell the properties for roughly $130,000 more than their initial investments of 320,010 on average, a gross return on investment of nearly 41%.

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8. Wright County, Minn.
> Return on investment: 45.2%
> Increase in foreclosures: 14.2%
> Unemployment rate: 6.4%
> Number of flips: 295

Like several other strong home flipping markets, flipping activity in recent years has declined considerably in the Minneapolis-St. Paul metro area, which includes Wright County. At the end of 2012, more than one in five metro area home sales were flips. A year later, this rate had declined to less than 3% of sales. However, home flipping is still quite active in the area. There were nearly 300 flips in Wright County between April 2013 and this March, more than in the vast majority of housing markets. Home flipping was also lucrative, with flippers getting a gross return of more than 45% on average, over that period.

7. Anne Arundel County, Md.
> Return on investment: 47.6%
> Increase in foreclosures: 16.2%
> Unemployment rate: 5.3%
> Number of flips: 146

Anne Arundel County, one of several lucrative flipping markets located in Maryland, has among the nation’s most valuable homes and some of its wealthiest residents. RealtyTrac estimates the area’s 2014 median household income at $95,275, more than all but a handful of counties. When compared to home prices, however, area incomes represented about a third of a typical home price of $276,050 last year. The particularly high income to home price ratio could partly explain the region’s rising foreclosure rate. Additionally, it may explain the area’s appeal to home flippers, who can potentially sell refurbished homes at attractive prices to buyers. Between April 2013 and March 2014, the gross return on investment for a home flip was nearly 48%, higher than in the majority of U.S. counties.

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6. Saint Mary’s County, Md.
> Return on investment: 48.7%
> Increase in foreclosures: 40.0%
> Unemployment rate: 5.2%
> Number of flips: 321

There were 321 home flips in Saint Mary’s County between April 2013 and this past March. As is the case in many Maryland real estate markets, Saint Mary’s also had high home prices and high foreclosure rates. The area was extremely popular among flippers in 2013. Home flips accounted for more than 20% of all the metro area home sales in all four quarters of 2013, among the highest proportions nationwide. And in the third quarter of last year, 36.6% of home sales were flips, more than all but two other urban areas at that time. This year, however, the number of home flips dropped sharply. In the first quarter, just 2% of sales were flips. Home flipping activity may rebound, however, as foreclosure rates were up 40% in the first quarter of 2014 versus the year before, providing extra inventory for flippers. Real estate investors were able to turn a 48.7% gross profit on home flipping over the 12 months through March.

5. New Castle County, Del.
> Return on investment: 52.8%
> Increase in foreclosures: 28.6%
> Unemployment rate: 5.9%
> Number of flips: 117

Home flippers in New Castle County were able to turn a 52.8% gross profit on homes they purchased for an average price of $127,795 between April 2013 and March 2014. The median home price in the area of $174,800 in the same 12 months far exceeded the estimated median household income of $63,022 for 2014. The relatively high risk home buyers are taking may in part explain the recent rise in foreclosures, which increased by nearly 29% between the first quarter of last year and the first quarter of 2014. While the higher foreclosure rate indicates area homeowners may be struggling, the increased number of distressed properties is good news for home flippers.

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4. Campbell County, Ky.
> Return on investment: 69.9%
> Increase in foreclosures: 238.5%
> Unemployment rate: 6.3%
> Number of flips: 163

The median home price in Campbell County was $90,800 in the 12 months through March 2014, among the lower median prices nationwide. The area’s estimated median income for 2014 was comparably low as well, at slightly less than $60,000. This suggests homebuyers did not commit to mortgages well in excess of their income. And yet, foreclosures in Campbell County increased dramatically in recent months, jumping by 238% between the first quarter of 2013 and the first quarter of 2014, boosting the potential inventory for home flips. More distressed homes may help flipping activity return to 2013 levels, when more than 10% of all home sales were flips. Flipped homes accounted for just 3.4% of sales as of the beginning of 2014.

3. Baltimore County, Md.
> Return on investment: 70.8%
> Increase in foreclosures: 32.3%
> Unemployment rate: 6.1%
> Number of flips: 546

With a nearly 71% gross return on flipped homes in Baltimore County, it may not be surprising that there were 546 home flips between April 2013 and this past March, among the higher volumes of home flips nationwide over that period. Unlike many other counties located in Maryland, Baltimore County residents were not exceptionally wealthy, with an estimated median household income of just $64,393 in the county for 2014. Total foreclosures rose by 32% between the first quarter of 2013 and the first quarter of 2014, among the larger increases nationwide. This could continue to attract house flippers to the area.

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2. York County, Pa.
> Return on investment: 72.5%
> Increase in foreclosures: 10.2%
> Unemployment rate: 5.9%
> Number of flips: 179

Home flipping activity has declined dramatically in York County since its peak at the end of 2012, when 37% of all metro area home sales were flips. Despite the decline, flipping homes in the county remains quite profitable. Real estate investors purchased potential flips for around $88,000 on average, considerably less than the majority of strong home-flipping markets. Over the last 12 months or so, flippers were able to sell these homes for an average of close to $152,000 — a gross return on investment of nearly 73%.

1. Prince George’s County, Md.
> Return on investment: 83.4%
> Increase in foreclosures: 136.8%
> Unemployment rate: 6.0%
> Number of flips: 347

Flippers in Prince George’s County earned more than 83 cents on the dollar, among the best gross returns on real estate investment nationwide. Further contributing to the quality of the overall flipping market, foreclosures rose by 137% between the first quarter of 2013 and the first quarter of 2014, providing new inventory for flippers. Additionally, the unemployment rate was just 6%, offering signs of a reasonably good economy for potential buyers. Unsurprisingly, Prince George County is located in Maryland, where incomes are relatively high. Median household income in the county is estimated at $71,931 for 2014, more than in the vast majority of counties nationwide.