The first thing to know about house flipping in today's market is that it's not a particularly good time to be a house flipper -- housing supply is the lowest it's ever been, meaning competition is stiff and prices are high. Even Zillow's iBuyer section, Zillow Offers, recently announced it was done buying homes to flip, for the time being anyway.
With that said, there are some things house flippers can focus on for the rest of the year.
1. Research possible foreclosure areas
Foreclosures are a hot topic right now. There were no foreclosures for about a year during the pandemic due to a government ban (moratorium) on them. But now the ban has lifted and banks -- for better or worse -- will be foreclosing on delinquent borrowers once again. Foreclosures are often a good buy for house flippers because of the typically lower prices.
With that said, there probably won't be as many foreclosures from delinquent borrowers as there normally would be because these mortgagors have a significant amount of equity in their homes from rising home prices. Homes have risen 13.2% from May 2020 to May 2021, for example, and they're still rising. So, many people who are delinquent on their mortgage who would normally be facing foreclosure can, because of their increased home value, sell their home instead.
But not everyone is in that boat, and there will be some foreclosure activity. Flipping expert Jerry Norton picked 10 cities/areas that will lead the pack in foreclosures in 2022. He based his prediction on the cities with the most delinquent mortgage loans.
Top 10 mortgage delinquency areas/possible foreclosures (from lowest number of delinquencies to highest)
10. San Bernardino and Ontario (Riverside, California)
9. Arlington and Grapevine (Fort Worth, Texas)
8. New Braunfels (San Antonio)
7. Sandy Springs and Alpharetta (Atlanta)
6. Columbia and Towson (Baltimore)
5. The Woodlands and Sugar Land (Houston)
3. Naperville and Evanston (Chicago)
2. Arlington and Alexandria (Washington, D.C.)
1. Plano and Irving (Dallas)
You might want to consider virtual flipping if you don't live in one of those 10 areas.
2. Target pre-foreclosure leads
Because it's still uncertain what the foreclosure numbers will be, to help land a deal, you might want to start targeting pre-foreclosure leads where permitted. At this stage, the borrower has defaulted on their mortgage and is now in a grace period to pay off the loan. This can last up to a year or more, depending on the lender. Many people are ready to sell at this point, especially if they can walk away with some money.
3. Focus on cities likely to experience a price decline
A tactic that might work when prices are high is to buy in a declining area. The upside to doing this is you can get your flip for less money. Of course, there's no guarantee a declining area will turn around any time soon. Areas no more than 30 to 45 minutes from places of work, such as hospitals, distribution centers, or community colleges might be a safer bet.
According to Norton, these are the top five cities with price declines that flippers might want to look into:
1. Springfield, Massachusetts
2. Worcester, Massachusetts
3. Chico, California
4. Oxnard/Thousand Oaks/Ventura, California
5. Norwich New London, Connecticut
4. Line up financing
Once you find a property, you need to be ready to pounce on it, which you can do if you have your financing lined up. Many experienced flippers have an investing network or a financing partner. Other flippers might use a hard money lender or a home equity loan.
The real estate investor takeaway
Although it might not be an ideal time to be a house flipper, there are still deals to be had. And the best deals usually go to those who can react quickest to the market.