Mixing It Up in Real Estate
I’m the type of person who likes variety in life. I like spicing up my life by traveling different places, trying new restaurants, and giving some things the good ole college try as hobbies. But one thing I haven’t done is mix up my investing strategy...yet.
All my life I’ve been around buy and hold rentals. What my family did and my jobs in real estate have all been about long term rentals. It’s what all my transactions have been so far. I know there are other investment strategies out there...I’ve just shied away from them.
Mostly it was because of what I’ve read from Robert Kiyosaki and others who advise mastering one form of investment before moving on to another. If you start out in long term rentals, stay with those until you feel you’ve gained a substantial amount of knowledge. I believe Robert’s barometer of preparedness was “Do you know enough about a segment of investing, that you feel confident having your mother wage her entire retirement on a deal you’ve evaluated and prepared?” Once you’ve can say yes to that, you can try out another strategy.
My need for new experiences and temporary exhaustion of long term rentals is leading me down a different path this summer and I have two choices. I can become a long-distance investor of vacation rentals or stay local and do a flip with a trusted acquaintance.
Vacation rentals are something I hear people make amazing money from. A friend of mine made $7,000 by renting out her home over the course of 2 years. Not bad for part-time (she and her family obviously had to live there most of the year). I have an investor buddy in Florida who right now nets over $50K on 2 properties. But when it boils down to it by dabbling in vacation rentals…I feel that all I’m doing is giving my zebra Fuschia stripes instead of black ones. It’s still a zebra. I’m buying a property to hold on to. I’m renting it out to other people to use. I’m responsible for the maintenance. It’s still a zebra.
Flipping is different. Flipping is a race. You’re acquiring a property, fixing it up as soon as you can, and selling it as fast as you can. You aren’t renting something out. You aren’t holding on to the property long term. You get in, work, and get out. Once the property sells you’ve cut cords.
Flipping is expensive. If I didn’t have connections with an active flipper with their own private money sources this wouldn’t be an option right now. Most flipping requires private money (or a large stack of your own cash) because properties might not be lender worthy OR they require substantial remodeling.
Flipping is time consuming. Even if you hire out to contractors. Its picking out supplies, lining up contractors, checking on those contractors, paying the contractors, being excruciatingly efficient with your “go time” as my friend calls it (the time between when you purchase and aim to get it on the market). All while watching the home sales market to detect a change that might affect your on the market deadline.
Flipping pays. A flip done properly (with experience or experienced partners) can net $20,000-$50,000. Down side to it? It's not passive income like buy and hold. You are taxed at your normal rate.
If I didn’t have experienced friends, if they didn’t have their own private money network I wouldn’t be entertaining this necessarily. I wouldn’t go at it alone even if I had the financial capability myself. Why? Because I feel that buy and hold is so different from flipping that I want someone who will be sure I’m making decisions based on being a flipper than a buy and hold mentality creeping in.
By no means do I believe this is a permanent shift. It’s satisfying a curiosity. It’s providing me variety. I will still be learning about rentals. Society is always changing, you are never really done learning about any given topic. Ultimately I understand that true wealth comes from buy and hold. I will continue to acquire new rentals. I’m just spicing it up.
Rather than painting my zebra’s stripes pink, I’m going to go befriend a cheetah.