As the frenzy of easy appreciation fades from the national housing market, real estate investors are facing a dramatically different landscape than the one defined by the rapid gains of recent years. Recorded live from the BiggerPockets Conference (BPCon) in Orlando, Florida, co-hosts Ashley Kehr and Tony J. Robinson sat down with seasoned investor and contractor James Dainard to discuss whether house flipping is still worth pursuing in a slowing market. With two decades of experience renovating properties and navigating market cycles in Seattle and across the country, Dainard shared critical insights on how disciplined underwriting, tighter cost controls, and strategic property selection are keeping successful investors afloat.
The conversation comes at a time when market shifts are catching many newer investors off guard. Reflecting on the current climate, Dainard noted that while today’s market is undoubtedly challenging, it is far from the unprecedented downturn of the 2008 financial crisis. Instead, he compares the present flat market conditions to the period between 2012 and 2015, when rapid appreciation ground to a halt and profits were determined strictly by disciplined underwriting and strict cost management.
According to Dainard, the primary difference between flipping houses during the peak market years and operating in today’s environment is the level of risk. Over the previous four years, fueled by pandemic-era market dynamics, many investors targeted a standard 35 percent return on their capital investments. However, as transactions slow down and markets flatten or experience localized declines, Dainard argues that investors must widen their safety margins rather than accept lower returns. For his own portfolio, Dainard has raised his target return threshold to 45 percent.
This expanded margin serves as a crucial financial cushion against extended holding times, unexpected price reductions, and buyer closing costs. Rather than compromising on deal quality to keep a high volume of projects moving, Dainard emphasizes that investors need to be far more selective. While selling properties has undeniably become more difficult, the buying side of the equation is shifting in favor of disciplined investors. Sellers are increasingly motivated to negotiate, with buyers frequently asking for and receiving significant concessions below list price.
This environment has forced many prominent investors to deliberately slow down their transaction volume. Rather than managing a massive pipeline of simultaneous projects—a strategy that works well in appreciating markets but rapidly inflates overhead and decreases efficiency during downturns—experienced operators are scaling back. By focusing on fewer projects and maintaining operational efficiency, investors can avoid costly overruns and protect their bottom lines.
While national headlines often generalize market trends, Dainard points out that housing conditions vary significantly by region and price point. Expensive markets like Seattle are experiencing severe slowdowns, with some data ranking certain Pacific Northwest sectors among the toughest in the nation. Similarly, in markets like Scottsdale, Arizona, mid-tier properties priced between one and a half and three and a half million dollars are lingering on the market. Conversely, ultra-luxury properties in locations like Newport Beach continue to see strong demand from affluent buyers who possess independent capital and are less sensitive to interest rate fluctuations.
For rookie investors who cannot access the ultra-luxury tier, Dainard advises focusing heavily on properties that offer multiple exit strategies. Flippers run into serious trouble when they invest in mid-tier or higher-end homes that cannot easily be converted into rentals if the resale market stalls. If an investor is forced to rent out a million-dollar property, the gap between the rent collected and the monthly debt service can result in severe monthly losses.
By contrast, focusing on lower-priced starter homes—properties under $400,000—allows investors to refinance into Debt-Service Coverage Ratio (DSCR) loans if necessary. Even if renting the property creates a small monthly cash flow deficit, the losses are manageable, and the investor retains the equity to ride out market cycles. Dainard also encourages investors to closely track absorption rates by zip code and price point rather than viewing a city as a monolith. By examining where buyer demand and pending sales are concentrated, investors can pinpoint localized pockets of velocity and avoid stagnant market segments.
To guard against unforeseen market shifts during the renovation and holding period, Dainard stresses the importance of conservative underwriting. Rather than relying on the highest comparable sales in a neighborhood, investors should utilize cluster comps and base their calculations on lower valuations. Furthermore, pro forma budgets should incorporate robust contingencies, including extended holding timelines and a 10 percent cost overrun buffer on repairs.
For investors with single-family properties boasting larger lots, Dainard highlights the potential of developing detached accessory dwelling units, commonly known as dadus. With builder competition currently subdued, acquiring properties with development upside provides a strategic alternative to immediate resale. Depending on local regulations, investors can condoize these properties to create separate legal parcels, allowing them to sell off individual components or retain them as long-term holds for future appreciation.
The realities of navigating a difficult market were brought to the forefront when co-host Tony J. Robinson shared the ongoing challenges of his own Southern California flip, a property that has lingered on the market for nearly two years. Purchased during a shifting market, the property underwent a swift renovation, but rising interest rates and waning buyer confidence severely impacted its liquidity. After multiple price reductions, two buyers went under contract before ultimately backing out—one due to roof inspection concerns and a subsequent buyer over deck repairs, despite Robinson offering to resolve the issues.
With the property listed well below its initial underwriting and the potential for a substantial financial loss, Robinson weighed his options, including refinancing into construction debt to expand the square footage, listing the property for a nominal price to generate media attention, or attempting to restructure the existing private money debt.
Consulting on Robinson’s dilemma, Dainard advised exploring a max-loan DSCR refinance to evaluate cash flow possibilities, while simultaneously approaching private lenders to restructure debt terms. Rather than accepting a complete loss, Dainard suggested negotiating with lenders—particularly those investing via retirement accounts—by offering a reduced fixed return alongside a percentage of the property’s future equity upside when the market rebounds. This collaborative approach can help reduce immediate annual debt service costs while keeping lenders aligned with the long-term success of the investment.
Additionally, Dainard emphasized the vital importance of conducting pre-inspections on properties before listing them for sale. In a difficult market where nervous buyers are quick to walk away over minor maintenance items, proactive inspection and white-glove preparation help ensure that transactions make it smoothly to closing. As the market continues to transition, Dainard’s overarching message to investors is clear: while navigating a cooling market is undeniably difficult, disciplined financial management and strategic adaptability remain the keys to protecting capital and emerging successfully on the other side.