The 7 House Flip Strategies Every Pro Uses

TLDR
HGTV teaches two flip strategies. There are seven. Cosmetic, full gut, full renovation, landlord flip, builder flip, gray collar (wholesaling and wholesale), and white collar (zoning, lot splits, property management). Know all seven and every house on the block becomes a potential deal.

Table of Contents

The Scale of Livability

Every neighborhood has previously sold properties that tell a story. Most people think of the fixed-up houses that have sold on the block. There are also outdated houses that have sold. And there are bombed out houses that have sold.

On a bar chart of sale prices in a neighborhood, you can see the humps. On a scale, those humps line up like this: to the far right the range of comps, these are the after repair value houses. In the middle, the barely bankable cluster. To the far left, the bombed out houses, either gutted or desperately needing to be.

Value-add investing is moving up the scale to the right. The further left you start, the more risk you are taking on. The distance from the livability threshold is your risk.

Strategy 1: The Cosmetic Flip

Also called lipstick on a pig. Buy a barely bankable house. Bring it into the range of comps. Sell.

Cost: around $15 per square foot. A 1,500 square foot house runs about $23,000 in rehab.

Every item in a house has three options: repair, replace, or leave alone. On a cosmetic you leave as much alone as possible. Most of what you do are repairs, not replacements. Typical list:

  • LVP floors
  • Interior paint only, skip exterior unless it is bad
  • Trim and door repairs
  • Paint cabinets, do not replace
  • Possibly new countertops, backsplash
  • Refinish tub and shower surround in bathrooms
  • Paint vanities if possible, otherwise replace (still cheap)
  • Minor landscaping under $1,000
  • New hardware package throughout
  • Handyman budget for the stuff you forgot in the scope

Use the 70% rule to price the buy. A $300,000 ARV times 70% is $210,000 minus $23,000 rehab equals $187,000 offer.

Financing options are wide open. Bank loan, commercial loan, hard money, private money, or cash. This is why a cosmetic is often the first flip for a new investor. The house is livable today so a bank will lend.

Problem: everybody wants a cosmetic because they are safe. Great deals are hard to find consistently.

Strategy 2: The Full Gut

Also called a zombie flip. Buy a bombed out house. Bring it to the range of comps.

Bombed out houses are always available. Real skill and real risk are what you get paid for. Sellers know the risk, which is why the deals are consistent.

Cost: around $65 per square foot. On a 1,500 square foot house that is $98,000.

This is where I teach the quick six. Every property, I check these six: mechanical (hvac), electrical, plumbing, structural repairs, roofing, and siding/windows. Each one costs $8,000 to $12,000. Six of them puts you at $60,000 right off the rip.

If all six are there, you are gutting the house. Gut means drywall comes off. Drywall off means drywall replacement ($8,000 to $10,000) plus new insulation because the original was inadequate. You are at $75,000 before a single cosmetic gets touched.

On top of that, your cosmetics list is the same as the cosmetic flip but most of the items are replacements, not repairs.

$300,000 ARV times 70% is $210,000 minus $98,000 rehab equals $112,000 offer. Honestly, on a job this risky, I might drop to 65% instead of 70%. The 70% rule is a starting point, not a law.

Financing: no bank loans. Commercial is possible but needs 20% down of the total ($210,000 acquisition plus rehab), which is over $40,000 out of pocket. Usually not. You are looking at hard money, private money, or cash.

Strategy 3: The Full Renovation (and the Mirage)

The full reno is in between the cosmetic and the gut. Drywall does not come off but the house is not livable today.

Cost: around $35 per square foot.

The hidden danger on a full reno is what I call the mirage. You buy the house thinking you are in the slumlord range and you can push it to range of comps without gutting. Then you get in and find out you do have to take drywall off. Full rewiring or wood structural issues are two common triggers. Now you have added demo, drywall, insulation, and a deeper trip through the quick six. And you bought at a price that assumed you would not have to.

Houses are deceptive. Focus on the quick six up front.

$300,000 ARV times 70% is $210,000 minus $53,000 rehab equals $157,000 offer. Financing is the same story as the gut. No bank loans. Hard money, private money, cash, or 20% down commercial.

Deal Killer
The mirage buys the wrong house at the wrong price. Respect the quick six and assume you might have to take drywall off if any of the big structural items are there.

Strategy 4: The Landlord Flip

Also the safety and liability flip. This one has a different ending point on the scale.

Slumlord properties are not technically livable but someone is living in them. That happens because the slumlord skipped the safety maintenance. The difference between a slumlord and a smart investor is not forgoing safety items. Safety is non-negotiable.

Move slumlord to barely bankable. Spend less than $20,000. The quick six gets a code-compliance pass, not a full rebuild. Then run the safety checklist:

  • Window repairs, no broken glass
  • Fire alarms and carbon monoxide detectors
  • Egress windows in bedrooms (firemen need to get in, kids need to get out)
  • Code-compliant rails and stairs
  • Working locks on windows and doors
  • Working sensors on the garage doors
  • EPA issues: mold, asbestos, lead

Pricing math uses the 70% rule on the full ARV just like other strategies, but you do not actually do the full reno. So you spend $15,000 to $20,000 on a house you bought as if you were going to spend $53,000. The rented value will be less because the finishes are modest.

We do these a lot on houses we are holding as rentals. You want affordable rentals. Do not put gold in them.

Strategy 5: The Builder Flip

This is an addition or a ground-up build. You are expanding the scale itself.

If a house sells at $300 per square foot in a given neighborhood and it is 1,500 square feet, it sells for $450,000. Add 500 square feet and in theory you add $150,000 to sale price. Great deal, if the neighborhood supports that size.

A lot of neighborhoods do not. A house much bigger than its neighbors does not necessarily pull the full premium.

Remember, distance from the livability threshold is risk. Raw land is as far from livable as you can get. That is why I do not do a lot of new builds. If I had five flips going that are close to the livability threshold, I might take on one new build on top. Balance unlivable with livable.

Additions on the original house are some combo of a cosmetic flip or full renovation plus the new square footage. On a new build, I budget around $100 to $120 per square foot. On an addition, closer to $150. Construction costs vary wildly: room type (bathrooms cost more than bedrooms), size (smaller costs more per foot), dirt work, finishes.

I am a flipper, not a new builder. Additions when the time is right. Opportunistic on new builds.

Strategy 6: The Gray Collar Flip

Make money with your mouth. Two ways to do this.

Wholesaling. I get a contract to buy a house at $100,000. I find another investor who will buy at $110,000. I sell them my position in that contract. I never own the house. I get the $10,000 spread at the closing table.

Wholesaling with purchase. I actually buy the $100,000 house. I do nothing to it (or under $5,000 in cleanup and handyman work to make it smell better and remove the scary stuff). I sell it on the market to another investor for more than $100,000. I am a flipper selling to a flipper.

Both require a great deal on the front end. No value added through construction. The next buyer will apply their own 70% rule. So there has to be enough margin left for them and for you. Probably sucks for the seller. But a lot of sellers want the cash today and will take a discount to get there.

See the full wholesaling story for the line between clean and not.

Strategy 7: The White Collar Flip

For someone with a specific skill set. Three versions.

Settling a zoning or easement issue. Buy a house where the zoning or easement is dragging the value down. Solve it. Value jumps. I have seen people make a lot of money doing this. Not what I teach because the codes and legalities matter and I am not the right teacher.

Lot splitting. Buy a house on a big lot. Split the lot into multiple lots. Sell the split lots to a builder. Sell the house back to the market. Seen a lot of people make money this way.

Property management flip. Works on income-producing properties. Mostly multifamily. Example: a quadplex where each unit rents at $1,000. Using the 1% rule, $4,000 per month makes the property worth about $400,000. Turn the tenants or raise the rents to $1,300 each. Now $5,200 per month, worth about $520,000 at the same rule.

The Four Pitfalls

Every one of the first five strategies has traps.

The hgtv dilemma. Overbuilding the house past what the range of comps supports. Pushing above the range is speculation. No data backs it. As likely to lose that money as to make it. We make decisions on data.

The mirage. Already covered. Buying thinking you can move right on the scale, then finding you have to move left first.

The host. “If I were going to live here, I would want…” You are not going to live in the house. Over-renovating means pricing above the range of comps. There is nobody there to rent or buy at that number.

The give a mouse a cookie. Put in new floors and the trim looks bad. Redo the trim and the paint looks bad next to it. Redo the paint and the cabinets look bad. You have to be disciplined with scope and think about what each decision pulls with it.

Key Concept
Every flip can also be a rental. Same 70% rule buys the deal. On the rental exit, the bank refinances at 80% of value, pays off the hard money, and your tenant pays the mortgage. You keep the asset and the market appreciation long term.

FAQ

How do I know which strategy applies to a given house?

Look at where the house sits on the scale of livability and where your rehab skill is. Cosmetic if you are new and the house is barely bankable. Full gut if you have the capital and stomach for the quick six. The mirage is the trap in between.

Is it OK to mix strategies on one deal?

Yes. The builder flip on an addition is always mixed with a cosmetic or full reno on the original house. Just price the combined rehab honestly.

What is a buy box and why does it matter?

Your buy box is the set of deals you will actually buy. Nine factors define it. Without a buy box you are hunting everything and catching nothing. Knowing all seven strategies widens the buy box because more houses become potential deals.

Why do you drop the 70% rule on gut jobs?

Risk. The more unknowns in the rehab, the bigger the margin you need. 65% leaves room for surprise quick-six items and timeline slippage.

I am just starting out. Which strategy first?

Cosmetic. Buy a livable house. Live in it if you can. Use conventional financing. Learn the game with the simplest version.