A 2024 Guide to Flipping Houses in California: 5 Cities to Consider

How much do California flippers make?

According to ATTOM, return on investment (ROI) has been decreasing over the past five years, but remains attractive to many investors. Nationally, the gross profit on typical flip transactions is around 27.5%, which translates to about $66,500, based on current 2023 data. A 2022 state-by-state report showed California’s average flipping gross profit was $87,000 per transaction, with an ROI of around 15%.

Gross profits are calculated from the difference between the median purchase price paid by investors and the median resale price. Median home prices in the U.S. is around $430,000. California’s median home price is currently around $830,000. CAR predicts California’s median home price will climb 6.2% to $860,300 in 2024.

It’s important to note that your investment results can vary. Profits can also vary greatly from county to county, and even from city to city. Do your research on several areas before deciding on the best area to look for properties to flip.

Best places in California to flip a house

Fresno

Many cities in California have median home values that are on the higher end. However, Fresno home values aren’t quite so high, so this is a great city to look for homes to flip if your budget isn’t quite so big.

The city has seen some significant value growth in a year when many other areas have lost value. Additionally, home values are predicted to continue increasing in this city, so buying to flip can mean significant profits for savvy investors.

Year-over-year population growth: Up 1.15%
Median home value: $363,928
Year-over-year home value growth: Down 0.1%

Irvine

A planned community in Orange County, Irvine has lots of potential for real estate investors. With a healthy economy and low unemployment rates, the city sees continued population growth. Plus, home values have increased steadily over the past few years, which is a good sign for flippers.

Year-over-year population growth: Up 0.92%
Median home value: $1,331,529
Year-over-year home value growth: Up 7.9%

Los Angeles

Los Angeles is by far the largest city in California by population, with a population of 3.8 million. Known for being the hotspot for fame, music, and movies, this city’s popularity isn’t going anywhere. Home prices are fairly high, but flips in this city also have a higher potential for profit. The average profit per flip in LA was $161,500 last year.

Year-over-year population growth: Up 0.37%
Median home value: $926,593
Year-over-year home value growth: Up 1.4%

Ventura

Looking for a lower median price point in California with even higher potential profit margins? Look no further than Ventura. This city saw typical profits of $180,000 per flip last year. The coastal town has amenities like beaches and cafes to attract buyers from all around.

Year-over-year population growth: Up 0.24%
Median home value: $848,022
Year-over-year home value growth: Up 3.2%

San Diego

The San Diego metro area experienced a 1.2% increase in median home sale prices over the past year, rising from $860,000 in June 2022 to $870,000 in June 2023. With a wide variety of neighborhood options, plenty of sunshine, and easy beach access, San Diego has a lot to offer. The city also has a thriving economy with a plethora of job opportunities.

Year-over-year population growth: Up 0.73%
Median home value: $955,846
Year-over-year home value growth: Up 4.0%

I wouldn’t get too involved in the actual remodel yourself. If you really want to get bigger in flipping, you have to be using your time and your resources to go out and look for the next project, instead of trying to save a few bucks and trying to do the work yourself.

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  Daniel Donate Real Estate Agent

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  Daniel Donate Real Estate Agent at Cal Bay Realty

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  • Years of Experience 7
  • Transactions 260
  • Average Price Point $986k
  • Single Family Homes 206

Donate recommends that you definitely use the 70% rule, and these days, “If [the percentage] can be lower, make it lower,” he says.

3. Pick a financing option for your flip

Purchasing a home to flip with cash is almost always going to be in your best interest — however, not all investors have that kind of funding. If you need to finance the home with a mortgage, there are a few options you should consider:

• Hard money loans: These are loans from private lenders for short periods of time — they can come with higher interest rates and can be risky for inexperienced investors.
• Fannie Mae’s HomeStyle Renovation loan: This is a kind of loan offered by certain lenders that will finance the purchase of the property as well as the costs of the renovations — all wrapped up into one mortgage.
• FHA 203K Mortgage: This option allows homeowners to finance up to $35,000 in repairs identified by an FHA home appraiser or inspector. This option, however, requires the homeowner to occupy the home as their primary residence after purchasing, so it will not be the right choice for many house flippers.

4. Research your selected market

One of the biggest factors that will affect your return on investment will be the market conditions in the area you are looking to flip homes in. Flipping houses requires a delicate balance of availability of homes at discounted prices, making cost-effective renovations, and buyer demand for when you go to sell. Here are some signs that a particular area in California will yield opportunities for profitable house flipping:

Economic growth

A strong job market and an increasing population generally translate to increased demand for housing.

California has low unemployment rates by historical standards. But when it comes to population growth, the Public Policy Institute of California reports that the state is undergoing a demographic phase, experiencing its first population decline in recorded history. Residents are moving away from the coastal towns toward more inland regions, presenting opportunities in the housing markets there.

As an investor, look into areas of the state with recent influxes in residents as well as low unemployment rates.

Steady home value appreciation

One of the keys to maximizing return on real estate investments is paying attention to home value appreciation in the areas in which you are investing. Steady home price growth over the last few years can help you predict how much your investment might appreciate in value when you go to sell — this can also help inform your strategy.

The California Association of Realtors predicts the state’s median home price will climb 6.2% in 2024 to $860,300.

Donate says flippers making plans should analyze where things could potentially stand in six months, explaining that investors should ask: “What if the prices drop ten percent, fifteen percent, and if that number still gives you profit, then that’s probably going to be a deal that you would want to take on.”

5. Partner with a top California agent

A seasoned, local real estate agent can help with identifying trends and popular home upgrades. When it’s time to sell your flip, they’ll sell and market it. But they can also help you find houses to flip.

On working with an experienced agent, Donate says, “It’s very important because they’re the ones that know the activity of what’s going on.” He adds, “Maybe, nobody is showing up to open houses now. Maybe you’re getting two or three groups into open houses instead of the 100 groups over a weekend that you were getting six months ago. You’re not gonna know that information unless you were working with a real estate agent.”

6. Find a home to flip

Once you’ve got an agent keeping an eye out for you, alerts set up on real estate websites, and are scouring the multiple listing service (MLS), it’s time to find a home to flip. It could take several months, and you might have to make several offers on available homes before you’re successful. Be patient!

“I would say the best opportunities will be the well-maintained, outdated homes because those may require the least amount of work or budget to be put into the home remodel,” says Donate.

Once you win your bid, it’s absolutely crucial that you get a home inspection and an appraisal. When you walked through the home, you could probably tell you’d need to remodel the bathroom to sell. But a home inspection will reveal any hidden issues beneath the surface, such as a rotted subfloor in that bathroom, which you might have to replace to safely and successfully flip the home.

An appraisal is an estimate of the home’s current market value. If you’re using hard money or a mortgage to finance the flip, the lender will likely require it. The appraisal tells you what the home is worth now — which is valuable information if you’re concerned that you’re paying too much.

7. Estimate renovation time

Line up the contractors, plumbers, electricians, and anyone else you might need to begin work the day after the closing. Check licenses and references before signing any contracts. Once the property is yours, there’s no time to waste!

According to a recent National Association of Realtors remodeling impact report, high ROI renovations to consider include a bathroom remodel with a 71% return on investment, a kitchen renovation, which has a 75% return on investment, and refinishing hardwood flooring with a whopping 147% return on investment!

92% of realtors advise enhancing curb appeal before selling, with top recommendations being landscape maintenance (74%), lawn care (53%), and tree care (44%). The National Association of Realtors and the National Association of Landscape Professionals’s 2023 report highlights the financial and emotional benefits for homeowners by upgrading outdoor features.

“I would probably avoid going too detailed in areas where the value of the home doesn’t really support it,” says Donate. “There is going to be a cap in certain neighborhoods on what people are willing to pay to live in the area. And if you try to go way too out in these certain neighborhoods or cities, you’re probably not gonna get your money back.”

All of these projects have the added benefit of improving the home’s appearance and potential appeal to buyers. Remember that whatever you can do yourself — whether it’s a fresh coat of paint or scraping popcorn from the ceiling — builds sweat equity that will make you money when you sell.

8. Choose to rent or sell

Once the work is done, flippers have a choice. You can either rent the home and become a landlord, or sell it. If you used hard money to finance your purchase, you’ll have to refinance to hold the property long-term and rent.

How much should the home rent for?

There are a variety of different ways investors use to determine a monthly rent on their investment properties depending on their financing needs, fair market value, and comps in their market. Here are some methods to consider when getting ready to rent out your property:

• Use an online calculator to plug in your property’s information and determine a monthly rent.
• Research comparable properties and set a monthly rent based on your findings.
• Calculate based on your financial needs: Taking into consideration a monthly mortgage payment, homeowners insurance, property taxes, and a monthly maintenance budget.
• Work with your real estate agent to evaluate rental listings and tap into the MLS.
• Consider working with a rental company to handle the listing process — they will likely set the rent for you. Keep in mind that these companies will charge a fee to manage the property (10% to 20% of the monthly rent).

Setting a list price

This is where your top agent can come in handy once again — crafting a listing that highlights the improvements that were made while not being unrealistic on price is a delicate balancing act.

Work with your real estate agent to evaluate comps in the area and set a competitive price. List too high, and it might sit on the market for too long, too low, and you could be leaving money on the table.

“Today, I would be slightly below your goal, your transparent price. I would be a little bit under because you don’t know if you’re even going to get to where the comps are at. Be at an attractive price where people are still going to show up. If the house has value and if it’s really nice, people are going to pay. You’re going to get multiple offers still if the house has the value,” advises Donate.

What can go wrong with a house flip in California?

Seasoned California house flippers will price out home repairs before purchasing a property, and typically leave themselves a cushion for the unexpected. But Material costs have surged by an average of 19%, showing a slight decrease as supply chains aim for recovery, yet remaining considerably elevated compared to pre-pandemic levels.

Industry experts predict that the persistent demand for construction will likely keep these elevated costs throughout 2024 and 2025. By 2024, prices may escalate by 25% to 28% compared to the pre-2020 trajectory, presenting a significant challenge for those seeking to build or renovate homes on a budget.

Increases in construction costs could eat away at your flip’s profit, or put you in the red. A delay getting permits, or having materials delivered, would also decrease profits due to increased holding costs. The longer you own the house before flipping it, the tighter the profit margin.

“What can really get you in trouble is not knowing the condition of the home. It could be a foundation issue. It could be that the deck is completely wrong. With how materials are nowadays, the cost of that and the cost of labor, just trying to do a repair could suck up 25 percent of your budget on the house remodel, and now you just did a repair that doesn’t really improve the look of the home,” says Donate.

Key takeaways

While California is a fairly expensive place to purchase a property compared to some other regions in the U.S., the state still offers profitable flipping opportunities. It’s important to know your numbers and stick to a formula if you want to flip homes in California. Do your research and partner with experts in areas where you don’t have as much experience.

Finding an experienced agent is one important part of a successful flipping venture. HomeLight can connect you with top agents experienced in the California housing market.

Header Image Source: (Clayton Cardinalli / Unsplash)