Is Flip This House beneficial or hurting the REI community?

Question

I get a lot of new investor clients who are hypnotized into thinking the only way to make money in Real Estate is to flip houses. I try to convince them that the long term wealth is in Rentals and they should be focusing on diversifying their portfolio but to no avail.

What are your thoughts on the flipping craze?

J Scott · Answer

You call these investors "clients"...are you a financial adviser?

Flipping houses and owning rentals are two completely different business models and have very little in common.  For someone who doesn't have any savings and requires income to pay their bills, rental property probably isn't the answer -- generating significant income from rental property when starting with no cash isn't going to happen overnight.

Flipping houses is a *business* model -- no different than opening a restaurant or a shoe store.  It's active income based on the purchase and sale of inventory.  Rental properties are investments -- no different than buying dividend-generating stocks, bonds or other cash-flowing assets.  It's (in theory) passive income based on the ownership of an underlying asset.

The two have nothing to do with each other and can be used individually or in tandem to achieve different sets of goals for different people.  Personally, I flip houses because I want the active income; I don't like rental properties, so I plow that active income into non-real-estate assets that generate more passive income/cash flow.  That model is right for ME.  What's right for someone else is going to be based on their experience, situation, goals, etc.

To say one type of business is better or worse than another type of business or investment strategy is to miss the point (in my opinion)...

Wade Sikkink · Answer

I don't know if flipping is a "craze" right now.  It was much bigger 5 or 10 years ago, I think.

I own an apartment building, so that puts me in the rental side of the business.  We DVR and watch Flip or Flop and enjoy it (odd how their projects always seem to turn into money makers....)

I've bought @J  Scott book on flipping houses, but in our small market the really killer opportunities are few and far between.  BTW, if you have any interest in flipping, go buy J's book.  Due to the lack of really good flip opportunities I'm thinking pretty hard about spec new construction instead.  The market here is on the upswing and things are pretty good on the new construction front.

Whether your own rentals or flip houses, remember that the key is the numbers.  There are a lot of different ways to make money in real estate, just make sure the numbers are rock solid when you pull the trigger.

Good luck.

Andy Collins · Answer

Most people don't remember where the 'reality' shows came from.  About a 12-15 years ago the tv show writers were going on strike, no writers, no new shows,,so the network realized if they had 'unscripted' shows (big brother, etc etc) they could bring some new shows out during the strike.

They realized that the shows were actually liked by audiences, and the cost of production (no mega stars) saved money,,,so it is grown to today's 'reality' shows on everything and all done with so much drama it makes me laugh.

I loved one show that would show 'new hot water heater $1k, added value $2k", when truthfully you couldn't have sold it without the new hot water heater,,,I figured if you spent enough on  a house you could retire after one flip according to that show

Mike Hurney · Answer

@Andy Collins

These shows are entertainment, just like all reality shows,,they have very little to do with reality,,

I've been on the sites of a couple of these and the joke (on the viewers) is "There's nothing Real on a Reality Show." And if you think about it, how would you cut three months of two crews videos into an hour (40 minutes wo commercials) or two hours show?

Andy Collins · Answer

I realized I could never flip after watching some of these shows (i am a buy and hold investor), I don't drive an exotic car, I don't scream at people and I'm not always pushing contractors to work overnight because I have a open house scheduled.

These shows are entertainment, just like all reality shows,,they have very little to do with reality,,I think most people not in REI realize they are scripted and made to increase the drama for an audience,,,ever notice how the husband/wives teams nearly get a divorce every week from the fighting,,,

Is Flip This House beneficial or hurting the REI community?

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