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.
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.