Flipping Houses IS NOT Real Estate Investing

Flipping houses IS NOT investing in Real Estate! When you buy something in the hopes of selling it for a higher price in the future (buy low, sell high) that is SPECULATION.

You are speculating on two things:

1. You are purchasing the item at below market price
2. You will be able to sell that item at or above market in the future

When you flip houses, you are hoping for a big pay day. You plan to capture the equity that you have created through rehabbing. The trouble with this strategy is that you’re counting on equity, which is a perceived value. You cannot be absolute certain that equity will be there when you plan on selling. There are WAY too many unknowns when you invest for equity, some of which include:

Market conditions: You may be well aware of your current market, but no one can see the future.

Time and budget: The rehab process can bring about a whole slew of unknowns. Surprise repairs can cause planned budgets to be surpassed and unexpected delays can deplete your margins.

Carrying costs: Another factor that is hard to pin down is the cost of holding the property. Taxes and utilities are a real nuisance to your margins.

Selling: Once your project is complete, you need to sell it in a timely manner and at the price you are expecting. Factors controlling the market may have changed from when you first purchased the property. This could have a negative or a positive effect on your asking price.

Buyer issues: Even if you have your side of the transaction figured out, the buyer side is completely out of your control. Financing can be very hard to come by. And if you do find a qualified buyer, you’re still on the hook for the appraisal! Appraisals can be the make or break point of your project. Trust me, you may think your property is worth the price, but the bank probably does not.

Flipping houses is a great way to build a business if you have the resources and capacity to do so. You must be able to work on volume and build a business if flipping houses can be considered a successful long term strategy. The ultimate goal when investing your money is to generate passive income. In other words, you want your money working for you. Unless you build a Rehab Business, then you will not be able to collect passive income, thus you will not be investing your money properly. Flipping a house here and there isn’t going to cut it.

When you invest money, you need to know and control everything. You need to be certain of your returns, and you need to be able to hedge against the unexpected. The best way to do this with Real Estate is by creating a long term, buy and hold strategy. Some of the key benefits that a long term buy and hold strategy will give you that short term flipping will not:

Cash Flow: Cash flow is the passive income that is critical to any type of investment. It is your guaranteed check in the mail. It provides you a basis to hedge against the unexpected since it gives you liquid cash on hand, and it enables you to plan and measure results of your investment more precisely.

Favorable taxes: Taxes are always more favorable for long term investments. You can actually increase your ROI through tax deductions that are not available for flips.

Raise funds: You can use your rental properties as collateral to raise funds for future projects.

Growth during economic downturns: People always need a place to live. When foreclosures are high, and financing tough to get, there is always a large increase in rental demand. This will cause rents to increase, which will ultimately increase your cash flow. Your investments actually grow while everything else is falling apart!

Equity on the back end: Equity is the bonus benefit. Not only will you be able to collect cash flow with your rentals, but you also have a chance to collect any equity that has built up during your time of ownership, which substantially increases your ROI.

Bottom line, unless your investment is providing you with passive income, then you don’t have your money properly invested. Owning rental properties is the best way to generate passive income and take advantage of all the benefits that come along with them. Flipping houses may sound great and an easy way to make a big pay day, but unless you build a business rehabbing houses, then you cannot collect a passive income. You are strictly gambling with your money in the hopes of it paying off. That is not investing.