Page 10 - From Ghetto to Gucci: The Basic Principles of Flipping Houses

Once you’ve identified a list of agents who are both personable and are selling the type of
house you’re looking for, it’s necessary to make sure that they know about the market. Ask them
a list of questions about the market, their opinions of what sells and what doesn’t, which
neighborhoods are hot, and where they think the market is going. If you’re looking for
suggestions, we’ve created a list of questions you can ask your prospective realtors.

Once you’ve gone and asked your candidates these questions, you should have a feel for who
seems to know that market best. Based on their expertise, type of housing they’re working with,
and their manner at open houses, you can now select a real estate agent.
Congratulations! You’ve now found a real estate agent who should be a fantastic resource for
you as you embark on your flipping career. This real estate agent should be able to provide you
with MLS access, as I described earlier, and is also a resource in their own right, with
information about the market and neighborhoods.

Finding a House – What to Look For

Now that you’ve selected a realtor, you’re ready to look for a house. You’ve already put some
time in looking around at the market, and now you’re ready to find specific houses. What do you
want to look for?

As a flipper, you’re looking for something that has a large ratio of apparently needed work to
actual work. You’re looking for something that looks like a lot of work, but requires much less
than it looks like it might. Typically this is cosmetic work. Cosmetic work is anything that looks
ugly, but is quickly and easily fixable. For example, a bad paint job could reduce the value of a
house by $10,000, even though it costs only $5,000 to have the house painted.

The reason that buyers typically overestimate the cost of cosmetic work is this: only about 20%
of the work on the house is cosmetic, or visible to the untrained eye. Using this as a way of
estimating the condition of the entire property, the buyer will look at the house with peeling paint
on the outside, and an ugly green on the inside, and think to themselves, “Oh no! The house
needs work all over!” The investor on the other hand will approach that house and think to
themselves, “Wow, all this house needs is a paint job!” The investor, because of their greater
knowledge of home repairs and costs, is able to more accurately estimate the cost and worry
that goes along with cosmetic work.

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