Talk of low interest rates has raised hopes that house flipping could make a comeback. Guess what? It never left.
according to a New report from New WesternOff-market properties market for local investors flippers 217% more starter homes are supplied to the market in 2025 than homebuilders supply, reshaping the story of affordable housing for first-time buyers.
Why is it no longer appropriate for builders to build tiny houses?
Like dinosaurs, starter homes once roamed all corners of America, until a cataclysmic event—the COVID-19 pandemic and rising interest rates—made them an endangered species. especially, New construction of starter homes decreased.
the new York TimesCiting data from the Federal Reserve Bank of St. Louis, it recently reported that builders broke ground on 1.36 million homes in 2025, down slightly from 2024. Given the 4-million-home supply gap realtor.comThere is still a significant void to fill.
“It’s not nearly as economically viable to build what we consider a starter home: a 1,000-square-foot home,” said DC mortgage lender Christian Kosko, who often works with young buyers. Washington Post. “They are now incentivized to build million, million-and-a-half million, $2 million homes. That’s where the profit is for those builders. The rise in interest rates has made the numbers no longer work for building smaller homes, even if they are mass-produced.”
Zillow senior economist Orphe Divongue said Post:
“In 2022, when mortgage rates more than doubled, builders started building smaller. They tried to make the math work for potential home buyers. But prices have gone up so much, it’s still very difficult to buy a home, especially in markets that don’t allow building on small lots. … When a builder goes out there and tries Creating something that actually sells in today’s marketThey just can’t.
A flood of flippers have arrived to fill the void
The possibility of an early home comeback was always there. According to , entry-level homes have been the steepest segment of the building drop-off, falling from 40% in the 1980s to just 7% today. home buying institute.
There remained a supply of older homes ready for renovation, waiting for cash-strapped investors and contractors to turn things around. New Western’s Flip Side report, based on dozens of major U.S. markets, found that local independent investors delivered 120,193 entry-level homes to the market in 2025, compared to 37,923 starter homes delivered by builders, marking a previously mentioned 216.9% increase for flippers.
In a recent press statement about the report, New Western co-founder and president Curt Carlton said: “What if the real housing crisis is not that we haven’t built enough homes, but that we’re letting millions of starter homes disappear? Solving today’s housing challenge isn’t just about building more homes. It’s about whether attainable housing actually exists at the entry point.”
Carlton said that in 2025, “small, local independent investors quietly become the largest suppliers of starter homes in America,” not by building subdivisions but by “reviving existing homes that would otherwise remain underutilized and returning them to productive use.”
Amid rising construction and labor costs, the allure of fully furnished homes has increased
In the 2026 prediction article, forbes Underscored the appeal of renovated and furnished homes for prospective homeowners over fixer-uppers. Shawn Pappas, partner at Starr Associates, said in the article:
“We also expect the bidding war to continue for properties that are ready to be transferred. The continued increase in construction costs, including labor and materials, has made it more difficult home buyers To Purchase And renovate. Therefore, we see a potential reduction in housing prices for homes that require renovation work, and an increase in housing prices for homes that are ready to move in.
Starter Homes: Close Relationships with Cash Flow Investors
Whether you’re a flipper or a small homeowner, a starter home is likely at the center of your investing equation. For flippers, the relationship is clear: demand. Given the affordability crisis, tiny houses are not only an entry point for many but also a long-term option, which has doubled empty-nest residence For old home owners.
New Western’s analysis shows that renovated homes are typically priced well below new construction and are often below the average price of homes on the market, making them an attractive proposition for small investors looking for long-term investments and cash flow. A previous report by new western found that revitalized homes are 35% to 80% more affordable than new construction in most markets, and 17% more affordable than the market average existing home sale.
The huge pool of old housing means there’s also huge potential BRRRR For flippers after interest rates have fallen, or for those who have the cash available to undertake a rehabilitation project to rent and refinance at a later date.
Small multifamily homes are the new starter homes
according to realtor.comBased on data received from National Association of Home BuildersSmall multi Family New construction two- to four-unit homes are filling the starter home gap. financing These builders have it easier because they are larger and make sense financially for homeowners as the rental income offsets the mortgage payments.
investors could look into Buying these too, especially new investors looking to start their zamindari journey, Because They qualify for FHA loans that require a 3.5% down payment. When refinancing a former personal residence into a traditional mortgage, by rinsing and repeating, investors can accrue a larger portfolio in a shorter period of time.
In many cases, urban infill lots accommodating smaller multifamily properties have replaced the older single-family housing stock as zoning laws changed to allow more housing. in new development, Outside city centers and established suburbs, two to four units sit together at home houses and single-family homes.
“In both cases, the appeal is affordability and access to the neighborhood can’t always be achieved “These townhomes or duplexes offer entry-level buyers the opportunity to purchase a home in the neighborhood of their choice without spending more than they can afford,” Joel Berner, senior economist at Realtor.com, said in a press release.
Final Thoughts: Best Cities to Invest in a Starter Home
The scope for generating cash flow from starter homes is only going to increase as a slate of zoning reforms move through the legal system to increase housing across the country. Often, this means building smaller multifamily units in place of older single-family homes. In others, it means creating ADU Also renovate an existing single-family structure where lot size allows. In all instances, the opportunities for flippers and homeowner investors in the starter-home space are plentiful.
Some cities are more favorable to investors looking for a starter home than others. Small metro areas are mostly located in the Northeast, Midwest, and South. realtor.com The report shows. Cross-referencing that report with this comprehensive analysis construction coverage Using data from the U.S. Census Bureau, Zillow, Redfin, and Freddie Mac will give you exactly where to start your starter home investing career.
