Which cities are best for flipping houses?

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Making money by flipping property has become as much of an American dream as homeownership.

The full spectrum programming on HGTV is a testament to how much we want to believe that we can make money off flipping houses, in small towns, in cities — anywhere there is a deal with good bones to be had.

Although many different factors make this dream potentially one that’s more made for television than for real life, it’s a universal impulse when seeing a fixer to wonder, what if?

In many markets across the country, the market has met or surpassed the peak prices of the housing bubble. Factor in inflation, and there may still be a little run-up to full peaks, but for some markets, the question does remain as to how much more runway there is for prices and the market in general.

This can make it hard to get in at the ground floor to nab a property worth rehabbing.

On the plus side, low housing inventory continues to plague the market, especially at the lower end. Another factor in the flipper’s favor is that many millennials prefer turnkey homes and aren’t as interested in fixers.

WalletHub recently evaluated 150 of the largest U.S. cities across 22 key factors to see where the living is good and the flipping is most profitable.

There were more house-flipping investors in 2016 than there have been since 2007, over 126,000 intrepid folks. With an average gross profit of $62,624 in 2016 — the highest amount since 2000 — the allure of the flip is strong.

Where do flippers prosper?

Coastal markets are mostly off limits, and smaller towns tend to offer more opportunity. The top 10 cities to flip houses were:

1. El Paso, Texas
2. Sioux Falls, South Dakota
3. Fort Wayne, Indiana
4. Peoria, Arizona
5. Oklahoma City, Oklahoma
6. Tampa, Florida
7. Grand Rapids, Michigan
8. Boise, Idaho
9. Greensboro, North Carolina
10. Springfield, Missouri

Where do flippers lag?

The most challenging cities for flippers were led by cities where the cost of buying in is high. The bottom 10 were dominated by large California markets and major cities:

141. Honolulu, Hawaii
142. Boston, Massachusetts
143. San Jose, California
144. New York, New York
145. Oxnard, California
146. Los Angeles, California
147. San Francisco, California
148. Newark, New Jersey
149. Yonkers, New York
150. Oakland, California

The best and worst only tell part of the story.

WalletHub also analyzed specific factors. Pittsburgh, Pennsylvania, had the highest average gross return on investment at 130 percent — 5.9 times higher than in San Jose, California, the city with the lowest at 22 percent. Pittsburgh also had the lowest percent of house flips.

Looking for a low buy-in? Head to Cleveland, Ohio, which has the lowest median purchase price at $46,250, and steer clear of, once again, San Jose, California, the city with the highest at $654,250.

When considering a flip, it’s important to look at a variety of factors, the first being location. Understanding a home’s potential is not just about the house itself but the overall health of the area it is in.

As Robert B. Kent, professor in the department of urban studies and planning at California State University, Northridge notes: “You can fix the house, but you can’t change the neighborhood.”

WalletHub’s experts also cautioned on over-renovating. Although it is tempting to want to create a magazine-ready home like Chip and Joanna Gaines, the renovations should not be too costly.

Jeff Schatten, assistant professor of business administration in The Williams School of Commerce, Economics and Politics at Washington & Lee University cautions that if you are flipping at the low end of the market, “renovations should be kept to a minimum, with a focus on cosmetics that are cheap, but effective.”

Those who are most experienced in construction and real estate tend to have the most success, partly because they are more likely to make smart choices when it comes to choosing potential flips and turning them into market-ready treasures.

Let those HGTV dreams fly, just make sure you have some sound fundamentals to back up your decisions.

Deidre Woollard is the co-founder of Lion & Orb, a real estate public relations company. Follow her on Twitter @Deidre.

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