To Flip, or Not to Flip?

Investing on September 13th, 2009 No Comments

That IS the question. I’ve had so many people approach me the last few weeks and ask me if this is a flip market, or if this is buy & hold market in real estate. I answer them the same way: YES.

There so many different factors that would determine which strategy to use; your local area & local market, your local ABSORPTION RATE (ask your investor-friendly Realtor about this – and if they don’t know, find one that does!), determining what type of buyers are looking for what type of properties where you’re looking, rents and rental demand in your area, and more are all things you must think about.

But the #1 thing I push my students to do is to think about their short term (5 years) and long term financial goals. Flipping property is truly one of the bread & butter strategies in real estate, and it has been done for a very long time. This is a way for you to bring in a large lump of cash, and inject it into your business (or your lifestyle!) within 1 to 6 months. Understanding the complexities of analyzing, structuring, and executing the deal are very important, but if you buy right and run your projects well, it’s a great tool to come up with some short-term cash. If you read our most recent newsletter, our most recent deal was a foreclosure in a desirable, middle-class town in MA. By understanding our numbers, and running the job the way we wanted it run, we made $60K in 60 days. Congrats to the student who worked to see this through! This is our second student who made over $50K on their first deal!

Flips can be found in ANY market. Some may have more opportunities than others. When you’re starting out, I advise people to start interviewing Realtors and other investors in the area. What are they up to? Are 2-bedroom homes selling? In this area of town better or worse to invest in? These people should NOT be considered your competition – we’re all in this fantastic game to pay our bills, and have some left over to live an excellent and well-deserved life, as well. You can also figure out, in your own neighborhoods, which areas are more desirable than others. Did you ever drive by that house with the uncut lawn, that seems VERY out of place? Might be worth a drive by the police station, and bringing them some coffee to ask them who owns that place and what they know about it. “If only,” you think, “that place was fixed up, I know it would sell for around $xxx.” There you go – your starting point.

The only caveat with flipping properties, is unless you set up systems to run your business without you, you’re always still involved. The moment you stop hunting for deals, or stop keeping relations with your buyers, investors & contractors, your business dries up. No more cash. This said, most of my students elect to start in wholesaling or flipping, and then move on to buy & holds.

If done appropriately, buying rentals is an excellent way to build long term wealth… passively. Meaning, if you set it up efficiently, you get checks coming in month after month that pay your mortgage for you AND give you some extra to live off of… without you having to do anything (if you have an excellent PROPERTY MANAGER- another member of your power team!). Buy & holds can also be found in any market, at any time. When you analyze your deals, if the cashflow works, then you submit the offer.
This strategy (flipping for short term cash, turning it into longer-term wealth through rentals) is not for everyone. Some people may not want to have real estate be their primary focus, and so maybe they only need to have one or two successful flips per year to add $60K to their lifestyle goals. To answer the question, is now a good time to flip properties, the answer is YES, and deals are everywhere… just make sure you BUY RIGHT, and lean on your team to help you.

Happy Investing!

Nick

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