Is Flipping Houses Still Profitable in Sonoma County? A Data-Driven Analysis

Let’s talk about flipping houses. 

Remember when it was all the rage? As the housing market flipped and flopped all over the place, smart investors were buying homes cheap, fixing them up, and then selling them for an immense profit. This worked when there was a lot of inventory and also a lot of media and Hollywood buzz. Home improvement shows helped everyone watching believe that it was as easy as buying, fixing, and selling. 

It’s actually more complicated, however, and flipping houses kind of stalled for a while as the market re-balanced itself and home prices shot up. Now, we’re also dealing with a higher cost of maintenance and renovation services. Supplies and labor cost more. Even a can of paint is nearly twice as much as what it cost when you were maybe flipping a home 20 years ago.

That doesn’t mean it isn’t profitable. 

Flipping houses can still be done, and it can still be lucrative. Even in an expensive and highly competitive market like the one we have in Sonoma County. 

You have to be smart. You have to know how to identify the right opportunities. And, you have to embrace the right team of contractors, vendors, service providers, and real estate experts. 

Let’s take a look at the data around flipping houses today, and we’ll help you decide whether this is the type of investment that’s best for you. 

Data: How Many Homes are Being Flipped?

According to data gathered by The Motley Fool: 

• Eight percent (8%) of home sales were flips in 2023, up from 5.7% in 2016.
• In 2023, 308,922 single-family homes and condos were flipped, or roughly 8.1% of all home sales last year.
• That’s a slight drop from 2022, which set records with nearly 437,000 homes flipped, or about 8.4% of all sales.

If you’re wondering what kind of money was made, we have some statistics on that, too, from Attom Data. 

• The average return on investment (ROI) for house flipping in 2023 was 27.5%. 
• The average gross profit was $66,000.

Those are some impressive numbers. 

But, house flipping is actually less profitable now than it was in 2016. 

In 2016, flipping earned an average ROI of 49.2% and an average gross profit of $62,624. In 2023, ROI was nearly half that, while gross profit was only a few thousand dollars more.

Keep in mind, too, that these are nationwide averages. Sonoma County has a unique real estate landscape. Flipping a house here is hardly the same as flipping a house in Jacksonville, Florida or Memphis, Tennessee.

Home prices are so high that the ROI may be a bit lower. 

The average gross profit for a flipped house in California in 2023 was $95,000, or 16% ROI.

It’s still a profit, however, which means flipping homes can bring in money for investors who are interested in buying, fixing up, and selling. 

It’s worth nothing that more investors are flipping properties that were bought with cash. Financed flips have fallen over the past couple of years. Thirty-seven percent of house flips were purchased with financing in 2023, compared to 39% in 2021 and 43% in 2017.

Flipping Houses in Sonoma County for Profit

Now that we’ve looked at some of the data, you’ll have to decide whether flipping houses is going to make you the money you want. The idea of flipping real estate is attractive because of its income potential. However, the profit part isn’t guaranteed. And, there’s often more work involved than people realize. 

There is always opportunity, especially if you’re a smart real estate investor who knows how to read the market. You have to be informed, and you have to be surrounded by experts. 

How to Profitably Flip a Property in Sonoma County: Some Tips and Strategies

If you’ve evaluated your portfolio, taken the temperature of the market, and considered the statistics, it’s time to decide. 

When it’s a yes, start by creating your network. You know you’ll need some help from real estate experts in order to identify the right property to purchase. That’s an obvious starting point. You’ll also have to determine where your skills are lacking when it comes to this type of investment. If you’ve never flipped a house before, you’ll have to be willing to fill in the gaps in expertise. 

You know you will need a contractor. You’ll need a real estate agent to help you earn as much as possible once the work is done. If you’re planning to rent the property out, you’ll want to work with a Sonoma County property manager as early in the process as possible, so you can determine how much rent you’re likely to earn and what kind of tenants you’re likely to attract. 

Prepare to pull the necessary permits once the work begins. Commit to working with professionals who are licensed and insured. It’s the only way to complete the project on time and within budget without feeling disappointed. 

Here’s where you’ll start, once you decide you’re fully invested in the idea of flipping a house or houses in Sonoma County:

• Create a Renovation Budget 

Budget not only for the property purchase but also the repairs, materials, fees, and the unexpected costs that will undoubtedly show up once the work gets started. It’s not as easy as budgeting for a simple renovation project on a home you already own. You’ll have to determine what you’re going to spend to make the property profitable once you sell it.

Industry experts recommend that when flipping a house, you should budget based on the 70 percent rule. This rule says that you should not pay more than 70 percent of the after repair value, less any repairs that you’re flipping. If the math doesn’t give you that percentage, you may not be choosing the right property to flip. 

• Decide on Financing the Acquisition

As we mentioned, there has been a growing trend in paying cash for your property before you flip it. That’s fine in many markets but here, you’ll have to come up with a lot of cash, even for a property that’s priced under-market. 

Determine how you plan to pay for your property. While paying for the purchase in cash will give you the best ROI, Sonoma County real estate is pricey, and you’ll likely need a loan. Consider a hard money loan for flips. This is a short-term loan that has a higher interest rate but more flexible terms. Some investors find them risky, but you can make them work as long as you pay off the loan within a year or two.

• Select the Right Sonoma County Investment Property

Flipping the wrong property will result in a big expense and a lot of frustration. Choosing the right property is going to make a big difference in what you can earn flipping homes. Look for a property that’s generally well-maintained but woefully outdated. This gives you the opportunity to make mostly cosmetic upgrades rather than major rehab work. 

• Estimate the Renovation Time Required to Flip 

Once you have created a monetary budget, it’s important to budget your time and other resources. Coordinate with contractors and service providers. Make sure you’re scheduling those plumbers, electricians, roofers, and other experts ahead of time. You want to have everyone in place as soon as you close so there’s no time wasted on the renovation part of this process.

It’s important that you’re working with the right timeline, the right budget, and the right property. Your contractors matter, too. Make sure you’ve identified reliable, responsible professionals who will help you move this project along.

Where to Focus Flip Upgrades: NAR Data

Let’s get back to the data in order to answer this important question: What type of work should you do to ensure you’re earning as much return on your investment as possible?

This will depend on the property you buy. The National Association of Realtors released a report recently that said the best renovations for the highest values include:

• Bathroom remodels (71 percent ROI)
• Kitchen remodels (75 percent ROI)
• Flooring (147 percent ROI)

The lesson here is pretty clear for smart investors. You’ll want to rip out that carpet and invest in hardwood floors. Make sure the kitchens and the bathrooms are especially modern and new.

Challenges in Flipping Sonoma County Homes

This is a great opportunity to make some money, even as the pricier market makes things more complicated. 

It’s our responsibility to warn you about the challenges and the risks, however. 

First, repairs are likely to be expensive. You’ll need to price them out before you even purchase a property because material and labor costs have risen dramatically in the last several years. Supply chain issues have more or less been resolved, but there’s still a lot of demand for this type of work, and many of your most trusted contractors may be struggling to keep up with the workload. You will perhaps pay more and wait longer. 

The logistics can also be frustrating. Waiting on the permits you need. Discovering problems within the structure of the house that you didn’t know were waiting for you. Work through each issue calmly, and rely on your team of professionals for advice and support. 

We can help you with this. Let’s talk about the best way to flip houses in Sonoma County. Contact us at Redwood Residential Property Management.