The Top 7 House Flip Myths DEBUNKED!

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George Washington wasn’t the first President of the United States…he was actually the fourth

Paul Revere didn’t act alone…he never cried out “the British are coming”

Air Force One doesn’t have an escape pod and anti-aircraft missiles hidden under the wings…it doesn’t even have guns

Seriously??

All these are things I never knew until last night when I was watching the Military Channel’s America: Facts vs. Fiction .

As I was channel surfing, it immediately stopped me in my tracks when I saw the teaser that George Washington was NOT our first President.

It’s true, he wasn’t.

Not only did this program debunk some very surprising “myths” on some of the most familiar and beloved tales from our military’s historical past, but it made me feel kinda stupid for not knowing them too.

It certainly taught me a few things on what I THOUGHT was true about our own history here in the U.S..

And like these myths in military history,  I couldn’t help but think of all the myths that exist out there in the world of house flipping as well. 

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George Washington Flipped Houses In His Spare Time

That one is NOT true…sorry.

But did you know that for several years in the 1700s, ol’ wooden teeth was the largest distiller of whiskey and brewer of beer in all the United States?

I digress – enough with the useless historical factoids…although I do think the GW beer things was pretty cool.

Although George Washington never flipped a house (although the rehab of Mount Vernon was one of the longest rehabs in history), you don’t need to be the father of our country to know that house flipping is an enormously profitable field with almost limitless opportunities to create wealth. But many people get stuck dead in their tracks by the strange myths that seemingly go along with it.

As you may already know, investing in real estate has been a tremendous way to increase personal wealth – and for many investors who’ve taken the plunge can attest, big profits can be made.

But the Internet in particular, with its rapid dissemination of information and oftentimes misinformation, has created many myths to evolve on the subject. And even though they may be completely false (like that Paul Revere thing), they’ve become myths that new real estate investors really believe in.

On the flip side (pardon the bad pun), if you’re too idealistic, you may never get anything done either – falsely thinking that for the successful  real estate investor, nothing ever goes wrong and everything always goes right.

That is a different kind of myth however…

Regardless, to move forward in your real estate investing and house flip career, you need to get a grip on the real story of house flipping – debunk the myths and do your own version of Fact vs. Fiction…which we’ll outline below.

Fact vs. Fiction: The 7 Most Common House Flip Myths

There are hundreds of myths surrounding house flipping – so many that a half hour Fact vs. Fiction television show wouldn’t be able to scratch the surface on all of them. However, here are a few of the more common ones we see every day when we talk to students, would-be investors and people who are interested in getting into real estate investing and house flipping in particular.

1. You Need Money To Flip Houses

Without a doubt, the biggest misconception in house flipping is that you need money to invest in real estate. Or even worse that there’s no way you can flip houses with no money.

While having money certainly helps – you actually don’t need it to flip houses or any kind of real estate investment.

The reason is that so many OTHER people have money – that even when you have money, it’s far easier to invest use other people’s money or “OPM” to leverage your buys.

Even now – that I thankfully have money to invest, I usually don’t. I put some of my own money in my deals at times,  but I usually never do because I can leverage other people’s money instead. That way it  makes both me and them a tidy profit. Whether its starting out with a loan from your family, doing a partnership with someone who has cash, finding a hard money-lender or partnering with your GC – money is everywhere.

You just have to go out and get it.

2. If You Have Bad Credit, You’re Out of Luck

When most people think of investing in real estate, they think of getting money from banks. If you have good credit and goo relationship with a banker, it’s certainly a good place to start. But if you don’t have either – then don’t bother.

This is where the private investor comes in – and although this may seem like a foreign concept to some people, its one of the best ways to get funding for your deals. Private investors can be anyone – from a family member, to a neighbor, to your dentist, to a friend or a coworker. All they need is disposable income that they are looking to get a good return on.

Although the stock market has been looking pretty good this year (except for the past month or two), people are always looking for a better deal. When you approach these investors not in a way like “Hey buddy, you wanna beat the stock market” – but instead just presenting them with an opportunity – whether its to potentially diversify their portfolio or earn some extra cash,you’ll  find private investor who are willing to listen.

And they wont ask you what your credit score is either.

3. Real Estate Investing Is Risky

House flipping and real estate investing are not risk free – don’t get me wrong. All real estate markets go up and down and there are significant risks – but not nearly as many would have you believe.

On the flip side (yes, bad pun again), how’s that stock market portfolio of your done the last ten years? The stock market, now that is real risk.

Unless you’re a fairly sophisticated investor, there are very few ways to mitigate risk int he stock market. However, with house flipping and real estate investing in general, there are very specific ways you can minimize downside risk –  or in some cases, eliminate risk almost entirely.

One of the ways you can get into house flipping is through wholesaling. While the standard buy, renovate and flip can carry some risk, especially as a first real estate investment, wholesaling is a less risky path for real estate newbies. In fact, many house flippers started their real estate investing career wholesaling.

My two wholesalers on my team started that way in fact. This is because when wholesaling is done properly, you don’t have to spend any money of your own or even borrow any from the aforementioned resources.

As a wholesaler, you find a property, place it in under contract and then find a buyer who will close ont he property in your place. You get a wholesaler’s fee in return for your hard work.

In a regular house flip, you need to enter every deal with a backup plan to minimize risk. If you can’t fix and flip it, can you rent it out instead and cover your expenses with some profit left over? Can you explore a lease option or another kind of creative solution?

If you do this, you can seriously minimize your risk.

4. You Have To Be Good at Construction To Flip Houses

While having some experience renovating can certainly come in handy, it’s not required. I haven’t physically worked on a project in years.

To leverage your time as well as reduce the time your rehab takes to complete, consider hiring a team of contractors to do the rehabbing for you. It may be more up front costs, but when the pros get the job done months before you would ever be able to do it, you actually will save money on your soft costs like loans, insurance, taxes and general maintenance.

Worst case scenario, you don’t want to be two months into a project, buried in plaster, electrical wires, and debt when you realize that rehabbing isn’t for you.

Even the most seasoned contractors will hire other sub-contractors to work on the highly specialized parts of a rehab project like electrical, plumbing and the like, so why should you?

5. You Have to Sell Immediately

In house flipping, time is money. Indeed, the longer you hold onto a property, the more money you lose. Finance charges from your lender, insurance, taxes, utilities and maintenance costs you every month. Also, the longer you hold onto a house flip before selling, the greater the chance of vandalism. We’ve had a rash of copper raids in our area and it’s probably no different in your area.

While the facts suggest you need to buy, fix and sell a flip as quickly as possible, it’s not always necessary.

Instead of wholesaling or the fix and flip, consider owning the flip long-term as a buy and hold. Although I’m known more as a “flip” guy, I do just as many buy and holds as I do flips – and you can’t beat the income stream.

There’s a few ways to do this.

First, you can rent out the property to a tenant or tenants and cover your monthly costs or if it’s a real good deal for a nice monthly profit. Even in some cases, I’ve known flippers to buy a house, really like it and then want to live there themselves!

In other cases, you can buy and hold until the market appreciates enough to sell. If you enter the deal knowing that in this scenario, you’ll at least cover your costs, then you’ve seriously minimized your risk. Or if you’re doing well profit-wise, just keep it and enjoy the rental income.

Although the ideal way to enter a flip is to buy, sell and flip asap, if you get in a tight spot, there are options for you.

6. You Can “Get Rich Quick”

Many Internet gurus claim you can be driving a Lambo in a few months after you dole out the $50K for their coaching program. Do we really need to address this one? Still?

As one of the biggest house flip myths – and if you’ve been a reader of Bigger Pockets here for any length of time – house flipping is in no way, no how a “get rick quick” endeavor. House flipping takes hard work, determination, education (yes, you do need to do this) and a certain amount of time to become successful. If your idea of “getting rich quick” is over two to three years instead of two to three weeks or even months,  then you have the right time horizon.

You are never going to make that kind of money on your first flip. Big money is made by slowly increasing your comfort level, tolerance for risk and experience.  Don’t go too fast for your own good and don’t bite off more than you can chew, so to speak. Slowly create wealth instead by not cutting corners and paying your dues in sweat, frustration and pain.

Yes, you need to experience all those things before you achieve success – and it happens over time.

So if you were just about to make a visit to your local Lamborghini dealership to test drive your new Lambo you were planning on snagging in a few months, you might want to recalibrate your mindset.

7. There Exists A Perfect House For Flipping

Just like every person you meet is going to have their flaws (except my wife Christine of course), every property is going to have its flaws as well – and for the ones you’re likely looking at to flip, more than just a few.

As a house flipper, you ideally want a strong foundation, good construction, good neighborhood, functional heating and cooling systems, perhaps a good roof  with 10-15 years of life left in it…

Good luck with getting all of those.

In fact, the more it has wrong (with limitations of course), oftentimes the better. When we walk into any new potential house flip, the more the house smells, the more it smells like money to me!

Ideally you want to find the ugliest house in a good neighborhood or you want a run down house with good systems and construction. Ideal house flips on both counts

However, it doesn’t happen that way in most cases. Your job is to simply do the best you can. No house is perfect and you’re always coming to run into problems and if you’re waiting for “the perfect flip”, you’ll be looking for a long time.

In fact, you may never find it. And that would be too bad.

Instead, pick a house and run the numbers. If you follow the house flipping rules and you’re in the green after your calculations, then its most likely a worthy buy. At some point, you need to take the plunge – and if you keep holding out, waiting for the perfect flip, you’ll keep waiting on that diving board…never ever getting wet.

What do you think? Did I miss any “myths” for house flipping or real estate investing?

Please leave a comment below and tell me what YOU think!

And by the way…still wondering about that George Washington myth? Click here to get the real scoop.

Photo: Yael Beeri

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About Author

Michael LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. He runs the website House Flipping School to teach new real estate investors how to flip houses and is the author of "How to Flip a House in 5 Simple Steps".

30 Comments

  1. john milliken on

    lots of myth busting this weekend….

    nice article Michael. your killing all of the newbie investor get rich quick flipping houses dreams in one article,lol.

  2. I’ll admit it. I was one of those newbies, still consider myself new after two years. However I didn’t believe everything I was told and didn’t fork out more money than I could afford to lose. On the good side, I didn’t let my dreams die after the first year, and the first deal that got squashed by a realtor and the local commission ( maybe I’ll do a blog on it, or more therapy is needed). I took some steps back and realized things weren’t happening the way I had “dreamed” they would, I needed to change my game plan.

    The potential was there but it wasn’t working for me the way I was currently doing things. I realigned my thoughts and now things are really starting to flow. It’s taken a lot of time, persistence, and great articles like this one and from many others, so here’s my thank you for keeping the dream alive!

    • Your very welcome Roy. Great to see you didn’t give up as plans change and you have to reinvent as you go as well. You are not alone when you say things did not go to plan the first year as you thought. The important thing is you learned from it and made adjustments.
      I made a business plan for 5 years and I can tell you it has changed and I didn’t meet my projections the first 3 years but the magic started happening in years 4 and 5. The key is a plan is just a road map and you have to change it and take new routes to get to where you are going.
      Thanks for your comments and sharing your story. Love to hear more from you as you advance.

  3. We’ve been doing this for 6 months. Our first property was acquired 2 months ago and goes on the market next week. We have learned a lot. And lost a couple thousand on EMD on 2 others that didn’t work out. We consider it am educational cost. (Still cheaper than a guru). I must disagree with this to a degree. You don’t need your own money. But you DO need money. My partner and I have spent countless hours trying to find this imaginary no money out of pocket investor and it doesn’t exist. We have to front points and inspection and appraisal on everything. . that is UNTIL WE ARE EXPERIENCED. Then we have a few guys willing to jump on board and front all costs. Yes you can do this with no money and bad credit. But what they don’t say is that you will need to have money given to you by a family member or something. Unless we are missing something I’d love to hear it lol

    • No Jeff you’re not missing anything it just how you perceive it. I just hear people say it takes money to invest in real estate and that is true and if you have the attitude I have “no money” so it won’t work for me then you will never do a deal. Of course this does not apply to you and your statement is true as well to a certain degree based on your experience and efforts.
      I agree it is difficult to get the upfront costs with the experience but if you desire to achieve success then nothing should stop you not even the EXCUSE I have no money. Money no doubt helps. One suggestion I make is if you are looking to do your first deal and you have nothing like EMD…….then you need to create a small network or find even just a few possible partners that will fund 100% if it is truly a deal you bring to the table then any smart investor would consider partnering with you. I even will say even if you have to give up 50,60,70% of the deal profits or more to get your first deal done is better than never doing a deal at all. AS a matter of fact I am looking at some deals new investors have sent me that have very little money to do on their own if they are true deals I may consider some sort of partnering on them.
      Thanks for your comments and it great to see you have done your first deal. Love to hear back from you when you sell it!!!! Good Luck.

  4. How do you get that Washington was the Fourth President? I know that some argue that the Presidents of the Continental Congress were “Presidents of the United States” (I disagree with this assertion- they had no power outside of the meetings of the Continental Congress, they were simply the Charimen of the Congress). But there were 15 different men who served in this role!

    • All good points! It seems like the Military Channel may have even gotten the exact number wrong as there were 7 Presidents of the Continental Congress, all under the Articles of Confedertion – but GW definitely was not the first. He was simply the first President of the United States under the Constitution that we all follow today. Washington himself even referred to Hanson as “the first President”.

    • Catherine Coy on

      Jeff Wells wrote: But what they don’t say is that you will need to have money given to you by a family member or something. Unless we are missing something I’d love to hear it.

      When I was buying properties for no money down, there were hard money lenders willing to lend, for example, 70% of after rehab value. What you had to do, then, is find a deeply discounted property; then a HML would lend you the money to purchase it PLUS at least some of the money to fix it up. Those days are not these days, but those days may return.

      • No problem Catherine. I think it really depends on several factors but I think the biggest one is the relationship between a HML and the investor and experience on investing.
        I get some deals funded 100% when I want while other investors may not with the same lender.
        As always thanks for your comments & keep them coming.

  5. Hi Michael!
    You have a very nice writing style!! Great points and I enjoyed reading it! One thing I was going to mention is that I have seen investors get cash funding on their very first deals but for me I noticed people opened up more regarding Private funding once I had a couple of successful flips behind me (I started off using Hard Money & Gap funding). Thanks again!!

    • You are so right Lisa as you gain experience and have some deals to show for it, it sure does open up more opportunity plus it give you the confidence to ask for money a little easier or should I say a lot easier. LOL.
      It is great to be able to negotiate with HML to your terms when you get to that point but don’t forget it it never hurts to ask. I am doing it now and it because they consider me a very low maintenance account and when I bring deals to get funded they are always deals and they know their money is safe.

  6. “On the flip side (pardon the bad pun)” – you are hilarious.

    1. Right now, we average about 2 flips a month. How? OPM.
    2. One of the biggest myths out there, you need to use banks to buy houses. It is not required to use a bank (some people don’t know this!). Only been done for the last 2-3 generations. They’ve really raked in by convincing us all that we need them!
    3. The risk in real estate is often between your ears. How to minimize risk? Get educated. Real estate works and is profitable in any economy. You simply change your focus and your strategy.
    4. You make your money finding great deals, not wielding a hammer or paint brush!
    5. You never want to tie up your money in a hold property. How do you prevent that? Tie up OPM. :)
    6. Flips provide great income for maintaining your holds. Want to be rich? Flips can get you there over time (don’t forget to figure in short-term capital gains on those flip costs). Want to be generationally wealthy? Hold.
    7. How to avoid surprises in a house you’re flipping? Expect surprises. They’re in every-single-one.

    Michael, I commented on all of your points to let you know that I read the entire post, more than once. This post is Fantastic! And you’re a great writer. Love, love, love this one – sending it out to our students.

    Big high-5 to Christine.

    • Thanks Karen. You’re the best!
      Sitting here in North country – NH on vacation with my family getting ready to spend the day by the river with no internet access. I know can you believe it. Trying to stay on top of emails a little each day but no worries as my team is handling everything else.
      Catch you later.

  7. Amanda Felton on

    I understand the OPM concept, but why do those “other people” need me? I want to do a deal with a friend, but he has all the cash. Why would I get a percent of the profit? I just can’t see where I fit in. Any suggestions?

    • Because, Amanda, you have all the necessary skills as well as the deal !

      We market for and find the leads, negotiate with the seller, get the property under contract, the “other people” put in the money. Then, we oversee the renovation or manage the property once we’ve put a tenant in it.

      There are lots of moving parts in any deal; all the other guy does is put up the cash.

      Good question!

    • Catherine Coy on

      Amanda Felton asked: I understand the OPM concept, but why do those “other people” need me? I want to do a deal with a friend, but he has all the cash. Why would I get a percent of the profit? I just can’t see where I fit in. Any suggestions?

      It’s HARD WORK to (1) find a seller with equity, (2) put the property under contract, (3) obtain estimates for work to be done, (4) supervise the work to be done, (5) advertise for and interview tenants or (6) find buyers for the renovated property, etc. It’s all very hard work worthy of a piece of the profit–if not most of the profit. People who put up the money don’t want to do any of the foregoing. Their money is an important component–but not THAT important.

  8. Michael, I disagree with your comment about there being “very few ways to mitigate risk in the stock market.”

    Put options (think insurance policy) are a well established, affordable and readily available way to limit an investor’s downside risk in purchase an investment security.

    Example: Home Depot (HD) is trading at about $80 per share with a $1.90 dividend. I think that the company will do well because there are more and more people getting into real estate and even in a down economy homeowners will fix their current home rather than trade up. But I’m worried that I may lose a lot if the stock price drops in the next year (or so).

    I buy 1,000 shares of stock ($80,000) plus commissions but I also buy that insurance policy (a put option with a $70 strike price and a January 2015 expiration date) for about $4. If the stock price does not go up I still earn the dividends. If the stock price does go up, I earn the appreciation AND the dividends. But if the stock price drops below the $70 before January 2015 I can force someone else to buy the stock for $70 per share. I limit my losses to $10 per share plus the price of the put option (total around $14 per share).

    This strategy takes a little learning but is available to any investor not just sophisticated investors.

    Try that with a real estate purchase. Unless you can find someone willing to sell a put option to you on a property that you own, if that property drops in value you incur 100% of the loss.

  9. Michael, cool article. First off, yes you did blow my mind with the George Washington fact! Haha.

    Second, I read it all. Cool stuff on house flipping. Have you had long-term success doing only the flipping method? I’d always thought the costs and the stress of the “race” to fix it up and sell it made it a tough gig.

    After reading about multiple methods of real estate investing, I gave purchasing a quadplex a try. It’s been working so far (all the units under one roof cover all the costs unless something huge breaks). I am now considering flipping as well.

    • Thanks Bill. I buy and hold as well and that is my long term play for passive income. The flips help fuel that and allow me to invest more in rentals. I like doing both.

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