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Posted about 11 years ago

To Flip or to Hold

I started my real estate investing journey in 2002.


For most of those years I have invested in the buy and hold type of properties, mostly residential.


Over the years I had this battle going on in my mind between flipping properties to buying and holding. Two conflicting strategies, or are they?


I always wanted to flip. I wanted to lift the hammer and raise the paint brush. I was also attracted to the potential high profits that can come from it.


The truth is I was always comfortable buying and holding and was always afraid of flipping – “what if it goes wrong and I lose money!”


As some one who works with many investors I realized few years ago that my investors are facing a challenge. They all understand and follow the concept of multiple rental properties but sooner or later run out of the down-payment cash. Most of them would need a year or more to save up, from their day job, the required down-payment for the next property. This means it will take longer to accomplish the goal of owning multiple properties.


They looked at me for an answer.


I solve problems with real estate.


I realize they need a way to generate short-term cash and be able to repeat it multiple times – the only way I know how to do it was to flip houses. Wholeselling, on the other hand, always seemed to me like something that would be difficult to duplicate constantly time after time unless you are a big player (that’s you job) or you dedicate yourself to it full time (make it a job) – most of my investors are the engineers, high-tech, W2 earners and not the ones who will starts wholeselling properties.


Back to flipping – but before going out and flipping the following challenges had to be met:

1. My nearby area (Silicon Valley) is VERY expensive, which means large amount of dollars (even if just for the down-payment), which means HIGH-RISKs.
2. Can I find a team, out-of-state, I can trust?
3. Can I replicate the process?
4. How would I create a safer investing environment for my investors.


After months of searching I was able to locate my first flip team in Dallas. This young mom and pop have been flipping properties for years for themselves. We have known each other but have not done flips together. Having a past relationship have helped in putting our efforts in the right direction.


This team is able to take the process from start to finish: ID the right property, acquire it, renovate it, and sell it.


After several more month I was able to ID the second team – in Atlanta. A two young professional partners who have experience in flipping mostly for themselves and for friends and family too.


Beyond legal documents, building a relationship and several working mechanisms these team have agreed to a profit sharing model. This means they get compensated out of the transaction profit, and ONLY if there is one. No profit – not dough.


And yes, they don’t get paid for the time they have put into the deal.


This had help accomplish few things:

  1. 1. Their financial incentive is tide to the project’s success.
  2. 2. They have an incentive to see the project all the way to the end.
  3. 3. They control the budget and as such have a strong incentive to keep the costs down.


As 2012 is closing and 2013 is starting I took the time to see what we were able to accomplish:

  1. 1. Multiple flips done!
  2. 2. Investors are all located in one state (WA, CA, MA, Europe . . . ) while the properties are either on GA or TX.
  3. 3. Some investors were able to complete multiple flips.
  4. 4. The average annual ROI investors had during 2012 is 50% (after the profit split).
  5. 5. The lowest ROI on a flips during 2012 is 10.5%.
  6. 6. No one lost money (knock on wood).
  7. 7. Some flip properties are like good lotto tickets and have generated amazing returns.


What’s next


You can benefit from this concept as well.


Complete this form and we will contact you to get you started: http://propertiesflipping.com/to-flip-or-to-hold/



Comments (1)

  1. Great blog post Dan! I hold and flip out of town as well. Do you structure the out of town deals as a loan, JV or something else? Do you have the local investor contribute at lease a little bit of capital toward the project? Do you have a typical profit split percentage you use or does it project specific?