Page 6 - From Ghetto to Gucci: The Basic Principles of Flipping Houses

Understanding the market

Understanding the market is probably the most important thing that you can do as a flipper. If
you don’t understand the market, you’ll either spend too much or too little, and you’ll miss the
sweet spot of spending that gets the best return on investment. If you don’t understand the
market, you run the risk of buying a house for far more than it’s actually worth. Or on the other
hand, you run the risk of submitting a laughably low offer that a seller will never entertain. You
can also price your house much too high or low when you sell it, leading to a house languishing
for sale or bought for far less than it’s worth. So let’s not waste any of your money. Let’s set
about learning the housing market!

The housing market is easy to learn, if you’re equipped with the right resources. When people
talk about knowing the market, they’re talking about the two components of housing price:
location and condition.

Location is fairly straightforward to factor into pricing, but can take some surprising twists and
turns. You’re probably familiar with upscale developments where you live—where the rich
people live. You’re probably also familiar with areas that people urge you to avoid. At its core,
that’s what you’re trying to figure out with location. Where are the richer people living, where are
the poorer living? Where are the houses generally worth more, and where are they worth less?

This is the broad component of location, and it plays a factor. There’s also a more specific
element of location that plays a factor. Even within a swanky development, there’s that house
that’s backed up next to the highway. The noise from there will make that house sell for less
than houses that are a block away from the unaffected area. Similarly, if you’re across from a
sketchy hotel or liquor store, that will bring down the value of a house. Anything next to
industrial buildings, a busy street, or a loud bar/club will also bring down the value of a house.

Being on a block with a higher crime rate, with more houses near that have broken
windows/graffiti/visible maintenance issues will also lower your price. If there are noisy or
threatening neighbors near you, or people on the street, that can also bring down the price.

On the flip side, if you’re near a park or near public transportation (but not too near of course!)
you’ll have a nice little bump in your value. If you have easy access to highways, or live near
amenities such as restaurants, shopping, movie theaters, or other entertainment venues, you’ll
get an increase in value as well. Living in a limited access or gated community or on a dead end
street will also increase the value of a house.

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