Should You Be Flipping or Holding Right Now?
I was having a discussion with a colleague and friend last week and in the middle of our conversation he says to me …
“They’re a lot of work.”
“You need to be really good at finding deals these days … usually have to buy with all cash or with a high-cost loan so there’s more risk … manage a bunch of people to get the work done … and then hope the market is still good and it sells for the price you thought it would.”
“That’s a lot of stuff to do!”
“Compare that to a property I bought a couple of years ago for $75,000 that I put about $7k worth of work into. It’s worth about $150k now … it’s paid me $1,400 - $1,500 a month in rent since I’ve held it, and I just refinanced it and pulled out over $30,000 in tax-free cash.”
“Even after the refi, I still get over $300 a month in positive cash flow!”
“If I had flipped that property, yeah I would’ve made a good chunk of money, but it would’ve required a lot of work … taken between 4-6 months to pull off … and then I’d have to pay a good chunk of my profits in taxes.”
“By holding, I get to refinance and pull out tax-free cash … plus I get to KEEP the property. Why kill the ‘Golden Goose’, right?”
“Another thing I don’t like about flipping is the fact you have to go out and do it all over again. It’s like a job.”
“Yeah … when you put it like that”, I reply, “flipping does sound like it sucks!”
So what’s my take?
I totally agree with my friend. And I totally disagree as well.
Flipping can definitely suck if you’re not willing to develop the necessary skills to succeed (like marketing/lead generation, negotiating, delegating, managing people, hiring, selling/promotion, etc.).
This is a business where you really need an “A game”. Because trust me, it definitely ain’t as easy as they make it seem on A&E’s “Flip this House”!
But if you get serious about it and really treat it like a true business … it definitely can be a lucrative, money making machine.[SIDE NOTE: If you’re not willing or simply don’t have the time to develop the skills mentioned above but still like the idea of flipping real estate, I suggest the only way you do it is by teaming up with someone who HAS developed their A game.
Personally, my team and I are still active flippers because we see it as a way to generate lump sums of cash for ... what else … more real estate (or notes) to buy and hold onto long-term.
So we’re both – flippers AND long-term buy & holders as well.
The ultimate goal for any real estate investor should be to acquire and hold onto as many Golden Geese (cash-flowing real estate and/or notes) as possible. That’s how true wealth is built.
My investing philosophy and approach has pretty much been the same over the past couple of decades: Flip 3, hold 1.
It’s a strategy I affectionately call “Pump & Dump”. And I know that sounds a bit crude, but all it means is flip 3, which is your active business operations (“pump”), and then take all or a portion of your profits from your flips … and “dump” into a long-term buy & hold.
Now when I say “flip” by the way, I’m talking about strategies that not only include rehabbing, but also wholesaling, creative financing, and the use of lease options. (We don’t have enough space this week as these are whole studies in and of themselves … so we’ll be delving into these strategies in a lot more detail in future issues.)
So what types of investments should you be socking your money into for your passive, long-term investments? Ahhh … that’s the million-dollar question.
Here’s what my team and I think are the absolute best investments/opportunities right now:
- Apartment/Commercial Buildings (primarily value play/repositioning opportunities)
- Mobile Home Parks (Did you know Warren Buffett – the 2nd richest man in the world – is heavily involved in the mobile home business?)
- 1-4 Unit Residential Properties (if you can find a property with a realistic 10%+ cash-on-cash return, in good condition, located in a stable or rising market, and with solid property management in place … that should warrant some very serious consideration)
- Distressed 1st & 2nd Mortgages and Notes That You Can Acquire at Deep Discounts. (In my opinion, this is where some of the greatest investment opportunities exist in the current market!)
Anyway, you’ll be hearing a lot more about these types of investments in the coming weeks … and how you’ll be able to take advantage.
Even if you’re a busy professional, business owner, or entrepreneur and you don’t have a lot of time to manage your own investments (or simply don’t want to), you’ll still be able to participate, as a number of our investments will be available as joint ventures.
So stay tuned my friend … lots of exciting stuff coming your way soon.