How Flippers Can Generate A Magnificently Abundant Retirement

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In last week’s post in which I said flippers generally will not enjoy a robust retirement, I also promised to show how they could avoid that harsh likelihood. There’s an assumption here too. I assume any flipper who’s been successful enough to not only boost their lifestyle but quit their day job, has the wherewithal to separate/create/generate sufficient capital to start a new ‘basket’ — long term investing.

The good news

Skilled and experienced flippers have a big time advantage over the typical buy and hold folks who’re investing for retirement. That advantage is twofold for many, but from the ability to create after tax, lump sum profits. Those profits can be used for one or both of two strategies:

  • Rapid pay down of purchase money loans in their long term ‘basket’.
  • Buying more properties for the long term basket.

Real life example

George was a very successful flipper here in San Diego for quite some time. He did it while working as a highly paid attorney in the corporate world. He came to abhor his day job. He eventually quit, and now calls himself a recovering attorney. In good times and bad, he pretty much never made less than six figures yearly, flippin’ properties locally. He did better than some cuz he wasn’t limited to homes, turnin’ handsome profits on 2-4 unit fixers also.

Then one day it hit him — if he didn’t alter or add to his strategy, he’d be forced to buy and sell fixers till he died. This thought did not appeal to him, not even a bit. He called me. His most recent local flip was a well located four unit property near world famous Balboa Park. He’d been forced to keep it. The fix up period on these units had taken longer than planned, and he frankly admitted he’d been paying more attention to the more quickly turned house deals. The long ‘n short of it was that he’d inadvertently benefitted from the massive appreciation we experienced in the San Diego market.

In the two years he’d been dawdling through his complete make over of the half century old home in the front of the lot, the overall value of the units had doubled — literally. I convinced him to trade, tax deferred, to another more investor friendly state. He’s turned that one four unit property into over a dozen SFR’s which will be free and clear by 2020 or so when he turns 64. Combine that with the quick turns he’s also been pullin’ off in his wife’s home state in the midwest, and his retirement is pretty much set. They’ll retire with a total of about $12,000 a month, plus her pension, which should be an additional $35,000 or so.

If he hadn’t made that trade when he did, he’d now be a tired 55 year old flipper with a great house, a sweet ride, and a tricked up RV, wondering how he and his wife were gonna retire on her pension without him continuing his fixer business. I can’t imagine how depressing that would be.

The strategy calls for the diversion of at least a portion of the flipper’s after tax profits towards loan reduction on long term investments. If you’re one of the elite out there who’re buying/fixing/selling 8-20 homes annually or more, the fact you might be approaching or over 50 will likely not be a problem. In fact, if diligent you should be able to make impressive headway in a mere 5 years.

My experience has shown that when a long time flipper who’s quit their day job and successfully forged an envious lifestyle, seriously employs this strategy, they often become converts, almost disciples if you will, of this approach.

There’s nothin’ sexy about having to work forever when it’s not your choice. I’ve had this conversation with dozens of flippers who’ve flourished for years, then woke up one morning with that ‘Oh crap’ epiphany. Life is a bowl of cherries when you’re livin’ the good life as a young man or woman. It’s a different story when forced to work that hard just to keep things above water when much older.

Is this rocket science? Hardly. If the current downturn we’re experiencing hadn’t happened, the strategy(s) I’d bring to your table would be, and in fact were, much different, and not nearly as simple — vanilla if you will. Tell ya what though, applying this very simple approach as a modification to your current fix ‘n flip strategy will almost surely change your life — at least the one you’ll live in retirement.

#1 Caveat: Do not try to build your retirement income on investment properties in the same locations of some/most/all of your fixers. This is almost surely a recipe for heartache, if not disaster. What works for a turn ‘n burn model will often prove, um, counterproductive when investing for a magnificently abundant retirement. Different rules apply.

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

9 Comments

  1. Good question, really need to think seriously about the future, and make a project to maintain a productive life in retirement, a good suggestion is to have our own business is ..

  2. This was a wonderful example Jeff. Often the option to trade, tax deferred to another state is used currently by several investors and flippers I know as well and this has continued to prove beneficial for them as well.

    Thanks for the long and short of planning for the future, long-term planning.

  3. Robert Steele on

    Why is it that everytime I hear about the successful 6 figure flippers they always made their fortunes in Bubbleville California? It seems to me that in the early part of the last decade even a monkey could have made it successful there.

    I gave up on flipping in my market in Texas years ago. I know some people still make a decent buck here but my rational was that in California you could buy a $150K place, put $50K into it and sell it for $350K whereas here you could buy a $150K place, put $50K into it (same labor and materials costs) and sell it for $200K.

    Instead I use my 6 figure salary to fuel my real estate accumulation.

  4. John-Christopher on

    First this article reflects pre-2007 market. More importantly somebody has to pay for this. Escalating wages won’t. Therefore at best you’re operating at zero sum gain. Not to discredit fixing and selling, just the bubble part caused by massive speculation and this exact expectation of a 6-figure income in retirement ultimately on the backs of renters. Look where it’s getting us yet. Thirdly, you’re playing wise by sucking the air out of the economy where you benefit – obviously unsustainable.
    I wrote this on a sticky note so if you can delete this I know I tried. I enjoy this site immensely.

    • Jeff Brown

      Great question, Sophia. Flipping is, by definition, short term. That is, the flipper buys, fixes, then sells the property, hopefully for a profit. It usually takes 60 days to several months, usually not much longer. Therefore, the quality of location is relatively less acutely important — to the flipper. They don’t care, as they’re in ‘n out as quickly as they can turn their capital, right?

      However, long term investors will pay dearly for mistakes made concerning location quality. That’s why I wrote what I did. Make sense?

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