The best cities to flip homes in the US

It’s a good time to be in the house flipping business.

It’s a good time to be in the house flipping business.

Over 110,000 investors flipped at least one home — selling a property within 12 months of purchasing it — in 2015, the highest rate we’ve seen since 2007. And they’re making a killing. The average gross flipping profit was $55,000 in 2015, making the average gross return on investment 45.8%, according to housing data firm RealtyTrac. That’s up from 44.2% in 2014 and up from a 35.3% in 2005, which is when flipping activity last peaked.

Flipping is still a long way off from 2005 levels, when throngs of flippers were 260,000-strong and the housing bubble was close to bursting. Today, the average flipper is only running through one or two homes per year, which is the lowest rate per investor since 2008. That’s a good thing. Too much flipping activity is usually a bad sign for everyday homebuyers.

“By its very nature, flipping is pushing up home prices faster than you would see if you were just a normal buyer coming in a purchasing a property,” says Daren Blomquist, spokesperson for housing data firm RealtyTrac.

Their data shows that the cities with the biggest flipping profits  — the usual suspects like San Francisco and New York— don’t necessarily offer the highest percentage return on investment.  (The average gross flipping profit is simply the difference between the purchase price and the selling price, but it doesn’t include the cost of rehabbing the property).  

Keep an eye on these five markets. They don't necessarily generate the highest returns, but they have seen the largest gains in ROI between 2014 and 2015.

Boise, Idaho: Gross ROI was 36.4% in 2015, up from 19.6% in 2014 (an 85% increase year over year)
Hartford, Conn.: Gross ROI was 79.3% in 2015, up from $52.6% in 2014 (a 51% increase year over year)
Ocala, Fla.: Gross ROI was 67.1% in 2015, up from  in 2014 (a 49% increase year over year)
Homosassa Springs, Fla.: Gross ROI was in 2015, up from 45.2% in 2014 (a 41% increase year over year)
Huntsville, Ala.: Gross ROI was 45.4% in 2015, up from 32.6% in 2014 (a 39% increase year over year)

You’ll find highest average flipping profits on the coasts:

San Francisco: $145,000
San Jose, Calif.: $145,000
New York: $120,000
Los Angeles: $115,000
Oxnard-Thousand Oaks-Ventura, Calif.: $110,000

But you’ll find the greatest ROI going off the beaten path, where homes can be found for much less than high-priced markets on the coasts:

Pittsburgh: 129.5%
New Orleans: 99.2%
Philadelphia: 98.4%
Cincinnati: 89.7%
New Haven, Conn.: 89.6%

Peak flipping?

There are signs that hot markets are beginning to cool off, despite rising flipping activity. Home values in San Francisco began to cool earlier this year and that trend will likely be seen in other expensive markets, Blomquist says.

That’s because there are a couple of key differences between the pre-housing bubble housing market and today’s market. Mortgage lenders, for one, aren’t doling out toxic home loans to buyers who couldn’t afford them like we saw in the early aughts. Lending standards are much stricter these days. And as cash investors move out of super expensive markets for cheaper pastures elsewhere, sellers are going to have lower prices enough to attract the average homebuyer with a mortgage looking to put down a minimal down payment.

“Flippers are going to have to keep that in mind,” Blomquist says. “If they take a home and over-improve it to a price point where first time home buyers can’t afford it, then those flippers are going to have trouble selling that property.”

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