The Top 5 Hottest Fix and Flip Markets in the U.S.

According to the Q2 2015 U.S. Home Flipping Report conducted by RealtyTrac, approximately 30,013 single-family homes were flipped–sold as part of an arm’s-length sale for the second time within a 12-month period–in the second quarter. This number makes up just 4.5% of all single-family home sales during that time.

What is interesting about this report is that the average profit for completed flips was $70,696–up from $67,753 in the previous quarter. This profit, however, does not include rehab costs and other expenses, which flipping experts typically estimate between 20 and 30% of the property’s after repair value.

Similarly, ROI, the average gross profit as a percentage of the average original purchase price, was up slightly at 35.9% for the quarter.

With profits rising and a limited amount of people actually taking advantage of this hot fix and flip market, perhaps now is the time to get your feet wet! But how can you find the best fix and flip markets?

Finding the Best Fix and Flip Markets

For most investors, finding the best fix and flip markets entails researching those with the highest profitability. Among zip codes with at least 15 completed single-family home flips, those with the highest average gross ROI included zip codes in Jacksonville, Florida; Dayton, Ohio; Baltimore, Maryland; Saint Louis, Missouri; and Memphis, Tennessee.

Areas with the highest average gross profits in dollars were San Jose, California; Los Angeles, California; San Diego, California; Washington, D.C.; and Seattle, Washington.

Let’s take a look at a few of these areas in more detail.

#1: San Jose, California

According to RealtyTrac’s report, San Jose offered the highest average gross profits in dollars on completed single-family home flips, with a return of $261,946 in the second quarter. Home to eBay, Cisco and Adobe, San Jose remains one of the hottest markets in one of the most expensive states in the country.

San Jose boasts an appreciation rate of nearly 10.3% over the course of last year, with median home prices about four times the national average. Perhaps it is the thriving tech industry that continues to fuel San Jose jobs and therefore the housing market. Savvy investors would be remiss not to keep this market on their radar.

#2: Los Angeles, California

Similar to San Jose, Los Angeles’s numbers on the RealtyTrac report boasted substantial returns for investors. The average gross profits for flips in the city were $171,954 in Q2. What is interesting about the Los Angeles market is that many of the “affordable” properties have already been snatched up, and investors are setting their sights on the higher-end of the market. By the numbers, it’s paying off with huge gains.

Smart investors in the Los Angeles market should pay attention to specific neighborhoods with the highest returns. A report by Redfin notes Mid-City, Mt. Washington, Highland Park and Leimert Park as some of the hottest in Los Angeles.

#3: San Diego, California

Also topping RealtyTrac’s report is the California city of San Diego, boasting an average gross profit of $141,483. In fact, Redfin notes that the San Diego neighborhood of Poway sees average returns in excess of $144,000. Another positive for the San Diego real estate market is that the city’s jobs and per capita income are recovering quickly according to the First Tuesday Journal.

Investors considering fix and flip projects in San Diego should carefully evaluate their neighborhood of interest, and they should seek out hyper-local data (or the help of a real estate professional) to make knowledgeable and informed decisions.

#4: Washington, D.C.

With average gross profits of $139,927, it’s easy to see why Washington, D.C. makes the list of top home flipping markets to keep an eye on. In fact, in 2013 the Washington, D.C. neighborhood of Petworth was named the best neighborhood in the country for house flippers with an average profit of $312,400. Those are pretty incredible numbers.

Fueled by a strong jobs market and a wealth of professionals looking for a short commute to the city, Washington, D.C. continues to be a hot topic among new and experienced flippers alike.

#5: Seattle, Washington

Seattle, home to Starbucks, Zillow, Amazon.com and Nordstrom, rounds out our list of the top 5 flipping markets with an average gross profit of $131,028. Not surprisingly, low levels of inventory in the Seattle market are fueling demand among homebuyers, making quality real estate a hot commodity in the city. The neighborhood of Rainier Valley, one of the hottest according to Redfin, boasts average gains of $153,000, while West Seattle comes in with profits of $143,400.

Hot Flipping Markets Need More Than Great Numbers

Keep in mind that there is more to finding a great fix and flip market than the numbers. You need neighborhoods with affordable home prices, yes. But you also need to find a neighborhood that has appeal to potential buyers. A flip does you no good if it’s sitting on the market.

When starting your research, be sure to consider school zones and access to amenities like parks, shopping, restaurants, and hospitals. You’ll also want to research historic sales prices, the number of days on average it takes for a property to sell, and how saturated the market is with inventory. While you may not find a winner that excels in each of these categories, it’s important to make as informed a selection as possible. Play your cards right, and there is plenty of profit to be made in the fix and flip markets. Happy flipping!

House flippers: Are you located in any of these hot spots? If not, how’s your local market faring?

Let’s talk in the comments section below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.