Seven Flip Types

What it is

There are seven different ways to flip a house. And it’s mostly about where you start and where you end on the scale of livability.

1. Cosmetic flip — aka lipstick on a pig. You buy a barely bankable house, which is just to the right of the livability threshold — outdated but the mechanics are in good shape — and you bring it to the range of comps. The bank will give you a loan because somebody’s already living there. This is what you see a lot on HGTV. Renovation is around $15-20 per square foot.

2. Full renovation — Here’s where I introduce the slum lord range. Those are houses that shouldn’t really be livable, but a slumlord lets people live there. A full renovation is buying a slumlord house and moving it all the way to the range of comps. You don’t necessarily have to gut it, but you’re doing more than cosmetics. Watch out for the mirage here — you buy at slumlord pricing, then you start tearing into things and find out the drywall has to come off. Now you’re doing a gut. Around $35 per square foot.

3. Gut flip — Bombed out all the way to the range of comps. The drywall comes off. You’re redoing everything. Every one of the quick six — mechanical, electrical, plumbing, structural, roofing, siding/windows — gets replaced. Around $65 per square foot. I actually like gut flips because I’ve already decided I have to do everything and budgeted for it. The full renovation is where you can really get in trouble because of the mirage.

4. Landlord flip (safety and liability flip) — Moving from slumlord status to barely bankable. You’re not doing cosmetics. You’re doing safety and liability items: broken glass, fire alarms, egress windows, rails on stairs, working garage door sensors. Less than $20,000. What you’d do on a house you’re going to hold as a rental.

5. Builder’s flip — You’re extending the scale. If the house sells for $300 a foot and it’s 1,500 square feet, that’s $450K. Add 500 square feet, now it’s worth $600K. That’s $150,000 added. Except it doesn’t work in all neighborhoods — if the house is way bigger than everything else, you don’t get all that money. Could be an addition, could be a new build. I’m an opportunistic builder. Additions when the time is right, not a strategy I chase.

6. Gray collar flip — The sales flip. Two flavors: whole-tailing and wholesaling. Whole-tailing: get a house under contract at $100K, find an investor who’ll pay $110K, sell them your position in the contract at closing. You never own the house. Wholesaling: you actually buy it at $100K, maybe spend under $5K cleaning it up, then sell it to another investor. You’re flipping to a flipper. No construction involved.

7. White collar flip — Specific set of skills required. Buying a house with a zoning or easement issue and solving it. Lot splitting. The property management play — buying a rental, getting the property manager to raise rents from $1,000 to $1,300 a month, which increases the income-based valuation. Not what I teach. Just want you to know it exists.

Why it matters

Knowing all seven widens your buy box. If you only know strategy one and two, a lot of houses look like problems. If you know all seven, a lot of those same houses start looking like deals.

That said, the main thing I want new people to understand is that most of these are about the starting position on the scale. The further left you are — the further from livability — the more risk. But the sellers also know that. So you can get better consistent deals when the house needs more work. The bank won’t lend on a bombed-out house, but you also don’t have to pay the barely-bankable price.

I teach three of them: cosmetic, full renovation, gut. Maybe a little landlord flip if you’re going straight to a rental. Those four are where you spend your time, especially starting out.

How it shows up

When you’re walking a property and running the quick six, you’re essentially determining which flip type you’re dealing with. Nothing on the quick six means cosmetic. A little work here and there means full renovation. All six need to be replaced? That’s a gut, whether you like it or not.

The flip type is also how the fliporithm sets its defaults. Pick gut and it auto-adds drywall, insulation, demo, and replaces all six quick six items. Pick cosmetic and most of those are set to as-is. The flip type drives everything downstream.

Related

scale of livability, barely bankable, bombed out, the mirage, quick six, cosmetic renovation, gut job, safety and liability, buy box, fliporithm