Initial things to consider before getting into flipping

3 Replies

Hi guys,

I am new to the forum. I am interested in getting into real estate development (I am currently an attorney, but find real estate development very interesting and potentially something I can move on to once/if I ever want to leave practicing law. Not an real estate attorney by the way). I have some money that I have saved and want to start flipping houses, with the hopes of eventually moving on to larger development projects. I plan to do this with a couple of my friends who have several years of experience doing this, but I myself have absolutely no experience in this field. 

Because I am completely new to this, I was wondering whether anybody had any initial things that I really need to consider, high level advice, and/or some things that people with more experience know but may not be obvious to a complete novice in this business.

Thanks!

The biggest issue is the market....you have way more people wanting/trying to flip now than ever before with only a fraction of the distressed inventory there used to be.

Originally posted by @Sam Hubert :

Hi guys,

I am new to the forum. I am interested in getting into real estate development (I am currently an attorney, but find real estate development very interesting and potentially something I can move on to once/if I ever want to leave practicing law. Not an real estate attorney by the way). I have some money that I have saved and want to start flipping houses, with the hopes of eventually moving on to larger development projects. I plan to do this with a couple of my friends who have several years of experience doing this, but I myself have absolutely no experience in this field. 

Because I am completely new to this, I was wondering whether anybody had any initial things that I really need to consider, high level advice, and/or some things that people with more experience know but may not be obvious to a complete novice in this business.

Thanks!

It's the riskiest, most highly taxed way to participate in real estate investing.

On the other hand, 

Fix & Flip is the hardest, riskiest and most taxed way to participate in real estate investing. The National Association of Realtors states that the average Flip takes 6 months and grosses $64,000 (before accounting for rehab costs, carrying costs, cost of sales and so on) with the average net of $15,000. And if you are exceptional and do well with your flips the IRS loves you since they find extra ways to tax you and you don't have the benefits of depreciation and other write offs.

And that is not even taking into account all of the things that can and do go wrong during a flip (over paying for the property, the surprises of mold, asbestos, electrical, plumbing etc and contractors not showing up, along with the project taking longer to finish, getting the After Repair Value wrong on your projections, taking longer to sell than expected and so on.)

If you are going to do Flips, understand the cost/benefit ratio and I strongly suggest you find an income stream while you Flip.

If you have decent income you should be investing for cash flow with something that has tax write offs - dare I say Buy & Hold.

You can see the difference in the spreadsheet I provide for my Turnkey buyers below. I do suggest you buy in a market that will cash flow like Arizona or Nevada with good upside potential.

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

I, too, am an attorney (not real estate). I left the FT law practice to go into real estate full time and I love it! The fact is that there are lots of ways to make money in real estate: flipping, short term rentals, long term rentals, development, assignments ... the list goes on. It's important to look into all of these to see which will actually make money and meet your other investment goals.

Also: real estate is very, very local. The strategies that work in your market won't necessary work in other parts of the country. Be sure that you are choosing strategies that work in your particular area. Like an any investment, it's good to diversify your portfolio. Consider using multiple strategies to mitigate the risk of loss.