Should you build on a rambling addition, or pop the top of your flip house, to bump it up significantly in price range? In this post I delve deeper into the principals behind successful flips.Ask the question: “What is the highest and best use of this property, in this environment, for the near future?”

Any improvement of significant cost and scope should be done IFand ONLY if it put this property squarely in the MIDDLE of the packin size and price range, with the largest volume of current sales.The largest market segment obviously has the most home buyers – that’s the ticket to the flip success formula of selling promptly to avoid carrying costs and free up cash for the next project.

For instance, if you have $100k purchase price on a house that is too small for the families moving into the neighborhood right now, putting another $85k into an addition not only expands your market and significantly increases your asking price, it’s also consistent with the average in the neighborhood market today. But – is that always the best strategy?

When can building on not only be a major unnecessary cost, but actually hurt your sale by bringing down the price per square foot and increasing the time on the market?Why on earth would this be so?

• Remember that the market for the largest and fanciest showplaces in any community is sparse compared with the market for the middle of the bell curve – the average.
• Asking prices above the local average bump it into a higher price range than that of the neighborhood. The higher-range buyers will usually buy in the area wherethe property size and price are typical.
• If you can put “lipstick” on it and a “for sale” sign in front and sell it quickly for a good profit – enjoy the fruits of a great flip strategy!

What are the principals behind choosing the best strategy for any flip house, in any neighborhood?

 1. Know the neighborhood.

• Who lives there – who is moving in? How is the neighborhood changing?
• What changes to roads are beating an easy path to higher-end jobs and shopping?

 2. Know the local market.

• What is the average size, characteristics and sales price on fully-finished properties in the immediate neighborhood, ones that don’t have noticeable problems?
• Look beyond direct comparables and survey the broader market averages for the neighborhood.
• Where do buyers work and shop, and what is their income range? Is the average income rising steadily?

Avoid trying to push a flip property above the average selling price for move-in ready houses in the local market, as this is rarely successful in bringing higher-end buyers into a neighborhood below their target range. Build your success by planning your project to target the largest market segment – the middle of the bell curve – the average buyer.

How differently would you market the largest house in a neighborhood, compared with an average house for that area?

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