George Washington wasn’t the first President of the United States…he was actually the fourth
Paul Revere didn’t act alone…he never cried out “the British are coming”
Air Force One doesn’t have an escape pod and anti-aircraft missiles hidden under the wings…it doesn’t even have guns
All these are things I never knew until last night when I was watching the Military Channel’s America: Facts vs. Fiction .
As I was channel surfing, it immediately stopped me in my tracks when I saw the teaser that George Washington was NOT our first President.
It’s true, he wasn’t.
Not only did this program debunk some very surprising “myths” on some of the most familiar and beloved tales from our military’s historical past, but it made me feel kinda stupid for not knowing them too.
It certainly taught me a few things on what I THOUGHT was true about our own history here in the U.S..
And like these myths in military history, I couldn’t help but think of all the myths that exist out there in the world of house flipping as well.
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George Washington Flipped Houses In His Spare Time
That one is NOT true…sorry.
But did you know that for several years in the 1700s, ol’ wooden teeth was the largest distiller of whiskey and brewer of beer in all the United States?
I digress – enough with the useless historical factoids…although I do think the GW beer things was pretty cool.
Although George Washington never flipped a house (although the rehab of Mount Vernon was one of the longest rehabs in history), you don’t need to be the father of our country to know that house flipping is an enormously profitable field with almost limitless opportunities to create wealth. But many people get stuck dead in their tracks by the strange myths that seemingly go along with it.
As you may already know, investing in real estate has been a tremendous way to increase personal wealth – and for many investors who’ve taken the plunge can attest, big profits can be made.
But the Internet in particular, with its rapid dissemination of information and oftentimes misinformation, has created many myths to evolve on the subject. And even though they may be completely false (like that Paul Revere thing), they’ve become myths that new real estate investors really believe in.
On the flip side (pardon the bad pun), if you’re too idealistic, you may never get anything done either – falsely thinking that for the successful real estate investor, nothing ever goes wrong and everything always goes right.
That is a different kind of myth however…
Regardless, to move forward in your real estate investing and house flip career, you need to get a grip on the real story of house flipping – debunk the myths and do your own version of Fact vs. Fiction…which we’ll outline below.
Fact vs. Fiction: The 7 Most Common House Flip Myths
There are hundreds of myths surrounding house flipping – so many that a half hour Fact vs. Fiction television show wouldn’t be able to scratch the surface on all of them. However, here are a few of the more common ones we see every day when we talk to students, would-be investors and people who are interested in getting into real estate investing and house flipping in particular.
1. You Need Money To Flip Houses
Without a doubt, the biggest misconception in house flipping is that you need money to invest in real estate. Or even worse that there’s no way you can flip houses with no money.
While having money certainly helps – you actually don’t need it to flip houses or any kind of real estate investment.
The reason is that so many OTHER people have money – that even when you have money, it’s far easier to invest use other people’s money or “OPM” to leverage your buys.
Even now – that I thankfully have money to invest, I usually don’t. I put some of my own money in my deals at times, but I usually never do because I can leverage other people’s money instead. That way it makes both me and them a tidy profit. Whether its starting out with a loan from your family, doing a partnership with someone who has cash, finding a hard money-lender or partnering with your GC – money is everywhere.
You just have to go out and get it.
2. If You Have Bad Credit, You’re Out of Luck
When most people think of investing in real estate, they think of getting money from banks. If you have good credit and goo relationship with a banker, it’s certainly a good place to start. But if you don’t have either – then don’t bother.
This is where the private investor comes in – and although this may seem like a foreign concept to some people, its one of the best ways to get funding for your deals. Private investors can be anyone – from a family member, to a neighbor, to your dentist, to a friend or a coworker. All they need is disposable income that they are looking to get a good return on.
Although the stock market has been looking pretty good this year (except for the past month or two), people are always looking for a better deal. When you approach these investors not in a way like “Hey buddy, you wanna beat the stock market” – but instead just presenting them with an opportunity – whether its to potentially diversify their portfolio or earn some extra cash,you’ll find private investor who are willing to listen.
And they wont ask you what your credit score is either.
3. Real Estate Investing Is Risky
House flipping and real estate investing are not risk free – don’t get me wrong. All real estate markets go up and down and there are significant risks – but not nearly as many would have you believe.
On the flip side (yes, bad pun again), how’s that stock market portfolio of your done the last ten years? The stock market, now that is real risk.
Unless you’re a fairly sophisticated investor, there are very few ways to mitigate risk int he stock market. However, with house flipping and real estate investing in general, there are very specific ways you can minimize downside risk – or in some cases, eliminate risk almost entirely.
One of the ways you can get into house flipping is through wholesaling. While the standard buy, renovate and flip can carry some risk, especially as a first real estate investment, wholesaling is a less risky path for real estate newbies. In fact, many house flippers started their real estate investing career wholesaling.
My two wholesalers on my team started that way in fact. This is because when wholesaling is done properly, you don’t have to spend any money of your own or even borrow any from the aforementioned resources.
As a wholesaler, you find a property, place it in under contract and then find a buyer who will close ont he property in your place. You get a wholesaler’s fee in return for your hard work.
In a regular house flip, you need to enter every deal with a backup plan to minimize risk. If you can’t fix and flip it, can you rent it out instead and cover your expenses with some profit left over? Can you explore a lease option or another kind of creative solution?
If you do this, you can seriously minimize your risk.
4. You Have To Be Good at Construction To Flip Houses
While having some experience renovating can certainly come in handy, it’s not required. I haven’t physically worked on a project in years.
To leverage your time as well as reduce the time your rehab takes to complete, consider hiring a team of contractors to do the rehabbing for you. It may be more up front costs, but when the pros get the job done months before you would ever be able to do it, you actually will save money on your soft costs like loans, insurance, taxes and general maintenance.
Worst case scenario, you don’t want to be two months into a project, buried in plaster, electrical wires, and debt when you realize that rehabbing isn’t for you.
Even the most seasoned contractors will hire other sub-contractors to work on the highly specialized parts of a rehab project like electrical, plumbing and the like, so why should you?
5. You Have to Sell Immediately
In house flipping, time is money. Indeed, the longer you hold onto a property, the more money you lose. Finance charges from your lender, insurance, taxes, utilities and maintenance costs you every month. Also, the longer you hold onto a house flip before selling, the greater the chance of vandalism. We’ve had a rash of copper raids in our area and it’s probably no different in your area.
While the facts suggest you need to buy, fix and sell a flip as quickly as possible, it’s not always necessary.
Instead of wholesaling or the fix and flip, consider owning the flip long-term as a buy and hold. Although I’m known more as a “flip” guy, I do just as many buy and holds as I do flips – and you can’t beat the income stream.
There’s a few ways to do this.
First, you can rent out the property to a tenant or tenants and cover your monthly costs or if it’s a real good deal for a nice monthly profit. Even in some cases, I’ve known flippers to buy a house, really like it and then want to live there themselves!
In other cases, you can buy and hold until the market appreciates enough to sell. If you enter the deal knowing that in this scenario, you’ll at least cover your costs, then you’ve seriously minimized your risk. Or if you’re doing well profit-wise, just keep it and enjoy the rental income.
Although the ideal way to enter a flip is to buy, sell and flip asap, if you get in a tight spot, there are options for you.
6. You Can “Get Rich Quick”
Many Internet gurus claim you can be driving a Lambo in a few months after you dole out the $50K for their coaching program. Do we really need to address this one? Still?
As one of the biggest house flip myths – and if you’ve been a reader of Bigger Pockets here for any length of time – house flipping is in no way, no how a “get rick quick” endeavor. House flipping takes hard work, determination, education (yes, you do need to do this) and a certain amount of time to become successful. If your idea of “getting rich quick” is over two to three years instead of two to three weeks or even months, then you have the right time horizon.
You are never going to make that kind of money on your first flip. Big money is made by slowly increasing your comfort level, tolerance for risk and experience. Don’t go too fast for your own good and don’t bite off more than you can chew, so to speak. Slowly create wealth instead by not cutting corners and paying your dues in sweat, frustration and pain.
Yes, you need to experience all those things before you achieve success – and it happens over time.
So if you were just about to make a visit to your local Lamborghini dealership to test drive your new Lambo you were planning on snagging in a few months, you might want to recalibrate your mindset.
7. There Exists A Perfect House For Flipping
Just like every person you meet is going to have their flaws (except my wife Christine of course), every property is going to have its flaws as well – and for the ones you’re likely looking at to flip, more than just a few.
As a house flipper, you ideally want a strong foundation, good construction, good neighborhood, functional heating and cooling systems, perhaps a good roof with 10-15 years of life left in it…
Good luck with getting all of those.
In fact, the more it has wrong (with limitations of course), oftentimes the better. When we walk into any new potential house flip, the more the house smells, the more it smells like money to me!
Ideally you want to find the ugliest house in a good neighborhood or you want a run down house with good systems and construction. Ideal house flips on both counts
However, it doesn’t happen that way in most cases. Your job is to simply do the best you can. No house is perfect and you’re always coming to run into problems and if you’re waiting for “the perfect flip”, you’ll be looking for a long time.
In fact, you may never find it. And that would be too bad.
Instead, pick a house and run the numbers. If you follow the house flipping rules and you’re in the green after your calculations, then its most likely a worthy buy. At some point, you need to take the plunge – and if you keep holding out, waiting for the perfect flip, you’ll keep waiting on that diving board…never ever getting wet.
What do you think? Did I miss any “myths” for house flipping or real estate investing?
Please leave a comment below and tell me what YOU think!
And by the way…still wondering about that George Washington myth? Click here to get the real scoop.
Photo: Yael Beeri