Flipping Houses

Flipping Real Estate is Wonderful Till The Thousand Yard Stare Appears

Expertise: Personal Development, Personal Finance, Mortgages & Creative Financing, Real Estate News & Commentary, Business Management, Real Estate Investing Basics, Flipping Houses
249 Articles Written

Though I have experience in rehabbing real estate for profit, it’s not my cuppa tea. I harbor deep respect for those who’ve been able to consistently pound out several a year over a long timespan. Regardless of what most of the silly TV shows may imply, it’s a road strewn with potholes and nails even in the best of times. Rehabbing for profit is one of those things where the good news often morphs into the ‘too good’ news. Huh? What?

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Does this sound even vaguely familiar?

Your buddy, Don, started flipplin’ houses back in 2001. His day job was full time, but he worked like a demon on weekends and some nights. Slowly but surely his learning curve hit the point where he found himself doing three in one year. This inspired him to think about quitting his day job — which he eventually did a couple years later.

Since then Don’s been settin’ the world on fire. Instead of making $60,000 at his old job, he’s been averaging well over $100,000 a year. In fact, the last couple years he’s topped $200,000. He and his wife Lexxie rented their modest 1375 square foot home, and bought a trashed REO in Got Rocks Estates. They did so well with it that when finished they were able to refinance for $300,000. This was more than they paid + rehab costs. They bought the BassKiller Don had always wanted with the excess cash.

The only other non-real estate purchases they’ve made are Lexxy’s new Beamer lease, and Don’s new Ford 250. He felt her car was a luxury though his truck was an absolute necessity for his job. He wasn’t necessarily mistaken, but brand new? Really?

It’s been a decade now — what’s their status quo?

Well, Don’s 47 and Lexxie, not far behind, is 45. They love their home, the business is hitting on all cylinders, and both kids are in college. Their lives couldn’t be better.

And there’s the rub.

Though kidding themselves that their business was the key to a comfortable life, their plans to add long term investment properties with an eye for retirement never seemed to materialize. Then one perfect Saturday afternoon while at Lexxie’s cousin’s home for a BBQ, the conversation shifted to — you guessed it — her cousin’s impending retirement. Seems it was gonna happen next summer, as planned. Their home had been paid off for a couple years now, which enabled them to add to their cash reserves. Between her teacher’s pension, his Social Security, their free ‘n clear home, and a couple debt free duplexes they’d acquired when their kids entered high school, they weren’t gonna be rich, but would  be able to live worry free, and do a little globe trotting.

It was a relatively quiet ride home for Dan and Lexxie

Though they didn’t live up to their eyeballs, they knew much of their lifestyle had been a bit more extravagant than necessary. Yes, they diligently saved money, but not nearly what they could have. Now, 18 years from the coveted 65th birthday, Don knew they weren’t within shouting distance of any sort of reliable retirement income. Not only that, but he knew in his heart of hearts he wasn’t gonna keep flippin’ homes into eternity. In fact, though he hadn’t let on to Lexxie, it was already wearin’ on him. His body was showin’ the signs of a decade of a hard charging rehabber.

He knew hiring his labor replacement wouldn’t be that hard. He was already acting as foreman, so he’d be able to do that even better now. It’d cost him the profits of a rehab or two. Since he was now doing 8-10 or more annually now, that wasn’t a killer. Still, he had to face the truth about retiring: It just wasn’t gonna happen if he didn’t make changes in his way of doin’ things.

The ‘Too Good News’

The bottom line to this tale, the lesson to be learned, is simple. Don and Lexxie had the guts to start a business that ultimately succeeded to the point Don was able to quit work. Thousands would love to be in their shoes. The thing is, by neglecting anything remotely long term, they’ve become trapped in the financial net of living the ‘Too Good’ life, without making room for when that life would hafta transition into the reality of retirement. When this happens, rehabbers realize that even though they’re physically breakin’ down, something easily remedied, creating a doable retirement isn’t the same as throwin’ up new kitchen cabinets.

Get your long term investing for retirement portfolio started — and sooner rather than later.

In the last five years or so I’ve personally spoken with about half a dozen rehabbers in their mid to late 50’s — or older — who’re still rehabbing cuz they have no choice. What’s worse than that? Having kept a home or two each year the last several, only to learn they can’t be sold for almost any price in the local market. Their cash flow is enough to live on, but not enough to do much else.

Learn from them. Don’t be that 50-something flipper with the thousand yard stare.

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.
    don hines
    Replied almost 9 years ago
    Wow Jeff My name is Don and I am in my mid 50’s and I want to get bigger into rehabbing so I can quit the daily grind in a few years (59 1/2). I just can’t see my self answering to somebody else till 65. But, it will take the 5 to 6 rehabs a year to replace what is comming in now. I plan on doing that until I can’t “Go” no more. Then I will get into the reserves. Right now I am one of those who don’t plan to quit just because I retired. I wished you were in Little Rock so I could pick your brain a little. Don
    Joshua Gamen
    Replied almost 9 years ago
    Great article Jeff! Flip to make money, hold to build wealth! Cash flow is key!!!
    Jeff Brown
    Replied almost 9 years ago
    Thanks much, Joshua.
    Jeff Brown
    Replied almost 9 years ago
    Hey Don — I’m not convinced you’re in quite the pinch you perceive. Go to my site, grab my phone number at the bottom of anything I write there, and call me. You’re probably better off than you suspect.
    Replied almost 9 years ago
    Great article! In this market everyone should think keep and rent! Only making $150-$200 per house may not be much now but in 15 years when the house is paid off and the rent has doubled you will be setup! Only flip the house if you can get back 75% or more of what you have into the home after rehab.
    Replied almost 9 years ago
    Very good article! I’m an active rehabber and have done well. While I’m not anywhere near retirement, it is still in the forefront of my mind. As a result my wife and I keep our IRA contributions maxed out each year, and we invest aggressively in mutual funds, etc. I also pick up rentals on a regular basis to balance out the need for cash flow. Rehabbing is lumpy and over the long haul can be very profitable. The cash flowing rentals will help supplement the rehabs…especially when rehabs are slowing up.
    Replied almost 9 years ago
    Good article, Jeff. This is a prime example of money now vs. money later. Rehabbers and others alike make these decisions all the time, and it’s important we find a right balance between spending and saving. Unfortunately, most people overvalue immediate gains and consequently underfund their retirements or emergency accounts.
    Robert Blanchard
    Replied over 5 years ago
    A nicely laid out article Jeff. My father always said his Real Estate holdings would give him “Rocking Chair Money”. He meant that he could sit on his porch in retirement with money come in without him doing anything. I have several acquaintances that do no retirement planning and are now in their 50’s. They do not know how they will make ends meet in retirement and one even has a parents that have to depend their kids to send money to them each month to pay bills. I have not made nearly enough retirement plans but do know what I should be doing so I will be able to live comfortably in retirement. I only have 24 years to do so. There is a radio show called Money Talk with Bob Brinker. He calls the amount that someone needs to retire, Critical Mass. I do not know what that number is for me, but with many of the callers of his show, they do not reach it till their 50’s or later. Bob talks mainly about stock market investing and has a website that is quite thorough. I do not invest in the Stock Market but know many people to have company matched 401K’s. I suppose slow and steady can be ok when it comes to investment returns but I rather see my money grow faster doing Real Estate investing. Who here has made to the land of Critical Mass due to RE vs their Stock Investments Portfolios. I suspect it will be in the 75% range. I used to have this on a wall in my store: People do not plan to fail, they fail to plan Now I am off to do some planning, Rob
    Jeff Brown
    Replied over 5 years ago
    Hey Rob — Far too many people believe net worth is the key to retirement. That’s simply not true. After tax cash flow is the KEY. Though having a larger net worth is surely desired, it’s all about yield, safety/security, and risk. We can’t spend net worth.