WalletHub, a personal financial website, publishes a lot of fun studies. Yesterday, we talked about the quality of California’s public education compared to the rest of the nation, based on WalletHub’s study. Today WalletHub released the findings of a study that just might discourage you from trying to flip a house in the California residential real estate market.
Because five of the ten worst cities for flipping a house are in California: San Jose (#143), Oxnard (#145), Los Angeles (#146), San Francisco (#147), and Oakland (#150).
Note that all those cities are coastal.
WalletHub’s study looked at the 150 largest U.S. cities along three dimensions relevant to house flipping:
- market potential;
- cost of renovation and remodeling;
- quality of life.
Five California cities ranked in the worst ten for market potentional: Oakland (#141), San Francisco (#142), Fremont (#143), San Jose (#144), and Oxnard (#147).
Five California cities ranked in the worst ten for cost of renovation and remodeling: Los Angeles (#140), Oakland (#143), San Jose (#144), Fremont (#147), and San Francisco (#150).
(For those unsure of the location of Fremont: it’s north of San Jose on the east side of San Francisco Bay.)
California redeems itself somewhat in the “quality of life” category: no California cities rank in the ten worst for quality of life. Four of the best places for quality of life are California cities: San Francisco (#10), San Jose (#9), Fremont (#3), and Irvine (#1). Throw in Santa Clarita at #11 as a honorary member of the top ten.
Skeptical of the high ranking of the quality of life in San Francisco? Here are WalletHub’s measures:
- Crime rate
- Great schools
- Share of population with walkable park access
- Annual job-growth rate
- Unemployment rate
- Median salary (adjusted for cost of living)
- Pace of economic growth
Personally, there is no salary you could pay me to live in San Francisco.
But what about Las Vegas?
My husband likes to watch Flip Las Vegas, a reality TV show about house flippers Scott and Amie Yancey. The show ran on A&E from 2011 through 2014. It lives on in reruns.
Las Vegas was hit hard during the Great Recession. That included residential real estate. It was the saddest sack of cities bashed by the the watershed economic downturn. How do things look now?
WalletHub ranks North Las Vegas as 61 overall. Las Vegas ranks at 49.
Know the reason you’re buying
Buying a house to flip it is far different from buying a house to live in. Be honest with yourself about the reason you’re buying a house, and be realistic about you’re own skills in relation to that reason.
While home flipping enjoys its highest rate since 2007 [just before the Great Recession], according to RealtyTrac, the current homeownership rate is near the previous half-century low of 62.9 percent, which may translate to fewer potential buyers off the bat, depending on the location of your revamped property.
Being a homeowner is different from being a landlord, and a landlord is different from a short-term real estate investor, that is, a flipper.
Regarding house-flipping, Robert B. Kent, Chair and James H. Ring Professor in the Department of Urban Studies and Planning at California State University, Northridge, says:
House flipping by and large is a reasonable and legitimate business activity, that is an appropriate response to market demand. Overheated residential property markets occur because demand for housing far exceeds the supply. It is often a problem created first by explosive population growth. This phenomenon has occurred over the last 30 years in much of California, especially in coastal cities. In addition, under these conditions, home buyers believe that purchasing a home is an “investment” rather than a means to satisfying their basic need for shelter. This belief also overheats markets. However, high returns on owning residential housing are an historical anomaly, and not at all the case in most of the United States.