Flipping Houses in Texas: 5 Cities to Consider
DISCLAIMER: This article is meant for educational purposes only and is not intended to be financial or legal advice. If you are considering flipping houses in Texas, HomeLight always encourages you to reach out to an advisor regarding your own situation.
If you’re looking into flipping houses, Texas is a great place to start. The state topped the country’s list for top job growth rate and it’s seeing a growing influx of people moving to the area. Texas experienced a 15.91% increase in population size in 2022, according to Moving.com. That means demand for homes is staying steady and even increasing in some areas.
Additionally, it’s a relatively affordable place to start purchasing real estate. The median price for a single-family home in the U.S. was $372,700 as of Q4 of 2022. However, in Texas, the median home price was $334,000 near the end of Q4 of 2022.
With several large metro regions to look for properties and a plethora of suburban and rural areas, the state has a good variety to offer real estate investors.
We researched Texas real estate and dug deep to find helpful tips for flipping houses in the Lone Star State. We also talked to Jeremy Larsen, a top-performing agent who specializes in investment properties in Fort Worth, to get some insider tips on the Texas real estate market.
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What is house flipping?
House flippers buy homes, hold them for a couple of months, and then sell them for a profit (that’s the flip part). Typically, they buy distressed properties — either short sales, foreclosures, or homes that need significant work — fix them up, and sell them for a profit. Sometimes flippers buy and sell homes to wholesalers without making any repairs or updates.
The goal is to buy low and sell for a high profit — one that covers both the home’s initial cost and any improvements.
Larsen says the home-flipping economy is going strong in Texas. “The typical strategy [for flippers] is to go in and lay gray flooring and paint gray walls, and paint the stained cabinets, white,” says Larsen. “[Flippers] are not focusing on things, in my opinion, that would enhance the value of the house both for the investor and the end client,” he adds. There’s an opportunity to do renovations differently than most other house flippers in Texas.
Is house flipping profitable in Texas?
If you’ve watched any amount of home renovation television, you may have thought that flipping houses looks and sounds fun. But the most important question to ask yourself before you get into it is: is it profitable? And the answer is, it depends. The typical profit margin (the difference between the median purchase price paid by investors and the median resale price) for flips in the third quarter of 2022 was around 25%.
The typical flipper in Texas wants to earn around 20% per flip, according to Larsen. However, “A lot of those flips end up being low single digits to 10%. The industry average is — at the end of the day after you’ve done everything — if you walk away with 10%, it was a good day. Everybody got paid. You were profitable. Be happy,” he says.
With that in mind, Larsen advises that it’s totally possible to be profitable with flips in Texas right now. You just have to purchase the property at the right time, and look for properties that are a good deal.
How much do Texas flippers make?
So how much do flippers make in Texas? Profits vary by metro area and even from property to property. However, a flipper in Texas typically made around $43,000 to $62,000 per property in 2022. Research your desired investment cities and talk to agents and other flippers in those areas to figure out specific profits you can expect.
Best places in Texas to flip a house
“Texas is happening. We’re the pretty girl right now,” quips Larsen. And he’s right. Texas has a lot going for it, and there are several areas where flippers will likely find some great properties to flip. Check out this list of our top contenders.
In 2021, Dallas was ranked as the third-best place for flipper profits in the country. With increased job growth and relatively affordable property prices, the city has continued to increase in population. Dallas is the fifth fastest-growing city in the country, according to a report by the Kenan Institute. All this adds up to a good outlook for flippers in the area.
The only city on this list that’s ahead of Dallas in population growth is Austin. The city comes in second for fastest growing cities in the country on the list from the Kenan Institute. Austin is happening, and that means the city sees a lot of new residents and visitors each year. Both are great opportunities for real estate investment, and flippers can take advantage of that popularity.
San Antonio is another city that has been ranked as one of the best in the country for house flipping. As with many other major cities throughout the U.S., housing inventory continues to be low in San Antonio, driving the demand for real estate. Flippers can expect properties to see continued growth in prices in the area despite a slight slowdown in the market. As one of the more affordable places for real estate on this list, San Antonio is a great location to start your flipping real estate portfolio.
Houston is the largest city in Texas by population, and it has large potential for house flippers. New residents are attracted to Houston for its well-paying jobs and affordable housing, so you can expect real estate demand to continue in the area.
Out of the thousands of cities and towns in the U.S., El Paso ranked 50th on WalletHub’s list of best cities to flip houses. While it didn’t make the top of the list, don’t count out El Paso. Unemployment rates have steadily gone down in the city, according to the Bureau of Labor Statistics. This marks an economic improvement for El Paso, and continued growth in its real estate market is likely to follow.
You’ve got to get out there and find your guys and then do everything you can to hang on to them — consistency in available work and consistency in being paid timely goes a long way.
- Jeremy Larsen Real Estate AgentCloseJeremy Larsen Real Estate Agent at Berkshire Hathaway HomeServices, PenFed Realty Texas5.0
- Years of Experience 14
- Transactions 188
- Average Price Point $299k
- Single Family Homes 114
Step-by-step guide to flipping houses in Texas
Create your network and evaluate your skills
Unless you’re a licensed contractor, you’ll need a network of professionals to help you flip. Even if you’re handy around the house, evaluate your skills honestly. For some projects, particularly electrical and plumbing, you’ll need an expert.
Keep in mind that buyers may be wary of purchasing a flipped home if they can’t verify that permits were pulled, and the work was done by licensed professionals.
Put together a network of experienced, licensed professionals before you start scouting houses. In addition to people to perform the remodeling work, you’ll need an agent to find homes, a stager to help sell them, and possibly a lawyer to draw up legal documents.
When it comes to finding good contractors and subcontractors right now, Larsen says it takes “good old-fashioned elbow grease.” He adds, “You’ve got to get out there and find your guys and then do everything you can to hang on to them — consistency in available work and consistency in being paid timely goes a long way.”
Develop your budget
A budget that takes into account all repairs, fees, and the unexpected is a key piece to successfully flipping a home. But, how do you account for the unexpected? Since flippers don’t have a crystal ball to see the future, the industry has developed the 70% rule.
This rule states that you should never pay more than 70% of the after-repair-value or “ARV” of a property, less any repairs, that you’re flipping. The ARV is your estimate of the home’s worth after all repairs have been done.
For example, if the ARV of your flip is $300,000, and it needs $50,000 in repairs, you shouldn’t pay more than $175,000 to acquire the property. If all went well, you’d still have $75,000 in profit to cover other expenses (such as agent and stager fees). Even if something went wrong, you likely wouldn’t end up losing money.
Elements of your budget to pay attention to:
- Down payment and lender fees
- Home inspection fees
- Closing costs
- Mortgage payment, property taxes, and insurance fees for every month you’ll own the property
- Contractor fees
- Permit fees
- Utilities while you own
- Marketing fees, such as a stager and professional photographer
- Real estate agent fees to sell the property
Be mindful of where you spend renovation budgets and focus on things that will make the property stand out in an appealing way. For example, “Putting in quartz countertops is all over the place. It’s very tired,” says Larsen. Focus on adding features to the home that are different from other flips but maximize your budget and make the property esthetically pleasing.
Financing your flip in Texas
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.
Disclaimer: As always, there are benefits and drawbacks to each financing option. HomeLight always recommends that you work with a financial advisor to find the best financing option for you.
Research your 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 Texas will yield opportunities for profitable house flipping:
A strong job market and an increasing population generally translate to increased demand for housing — look into areas with recent influxes in residents as well as low unemployment rates.
Texas is most certainly growing. Between 2010 to 2020, Texas grew by 4 million residents. That is more than any other state. And the population growth has continued for the state since 2020. Additionally, the unemployment rate has continued to go down in Texas between 2020 and now. The rate currently sits at 3.9% as of December 2022.
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.
Nationwide, home prices have fallen from their peaks in 2021 and early 2022. However, economists are currently predicting that the market correction we are seeing in the form of falling home prices will be short lived — Wells Fargo’s economists are predicting that prices are going to rebound in 2024 with a 3.3% increase by the end of the year. This is good news for investors currently worried about home prices falling and losing money on their investments.
“The pace of the market [right now] is not as frenetic as it was,” says Larsen. “Now is the time [to invest] because while the market is less frenetic you are not competing as much with other investors and you’re not competing with the open market as much,” he adds.
Partner with a top real estate agent in Texas
A real estate agent helps with identifying current 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.
Due to the high demand for housing in some markets, and the fact that many sellers list on the open market and sell without repairing or remodeling, it’s become harder for flippers to identify potential homes.
“If I were talking to a friend in another state that wanted to start flipping houses, the first thing I would tell them to do would be to get in tune with a realtor who really knows what they’re doing, who has sold things in that neighborhood who knows what’s going on over there and that works the price range that you’re dealing in because it can save such a massive amount of money during the process for the investor,” advises Larsen.
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 you’re scouring the multiple listing service, 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!
“The best homes for a flipper are the ones that are structurally sound but esthetically awful,” according to Larsen.
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.
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 the National Association of Realtors remodeling impact report for 2022, 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!
Larsen says the top thing to renovate for the best ROI is flooring. “The second one is hardware and fixtures. If they have a good design eye and choose some things judiciously, whether it’s island pendants or a couple of different light fixtures in the house coupled with good door hardware replacements that makes a house feel sparkly and new right off the top,” he adds.
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.
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.
“I usually won’t ask above the top sales price per foot in the area, but I usually come in right underneath it. What that does is make people think that the list price on the house is reasonable. Oftentimes, that will then result in a bidding war, even in this market, depending on the area. And then, you’re ahead of the game. Where, if you shoot above where the top list prices in the neighborhood, then you’re starting out at a disadvantage, and it doesn’t go as well from a marketing and sales perspective,” says Larsen.
What can go wrong with a house flip in Texas?
Experienced flippers price out home repairs before purchasing a house, and leave themselves a cushion for the unexpected. But not even they could have predicted the 20% increase in construction materials between January 2021 and 2022. Building materials continued to rise in cost by 4.9% in the first four months of 2022, but have since fallen to only about 1.4% higher than they were a year ago.
Increases in construction costs could eat away at your flip’s profit, or put you in the red. A delay in 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.
Assembling a team to help you complete a project may also be a challenge.
“The hardest aspect of flipping a house right now is the lack of availability of subcontractors and the lack of competitiveness in that field because if you go to a painter, they have twenty different jobs that are being thrown at them every single day. They’ve got ninety different places they can go, and if they don’t want to work with you, they’re just not gonna work with you,” says Larsen.
Flipping houses is all about research and finding the right opportunities. If you are a first-time house flipper, be sure you understand the area where you are buying and selling. Look for indicators like a strong economy and healthy population growth to point you toward areas where flipping will be most profitable. Know that investing in a property to flip is always a risk, and there is the possibility of losing money.
Consult experts to help where your knowledge is weak. Consult with a designer if you don’t know which renovations will be most appealing. Hire a contractor to help you get the work done. And consult with a real estate agent to give you expert insight into the housing market in your area.
HomeLight can connect you with an experienced, top-performing agent in any of your desired Texas markets. Our free Agent Match tool analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.
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