Beginner Series - Flips In Today's Environment

Today’s show is another in our beginner series. Our listeners are sophisticated. Many of you own large portfolios of apartments. But you also have people in your life who are interested in learning more, but maybe don’t have access to high quality information. The idea of sending your spouse to a $199 weekend bootcamp for beginners where they are going to be abused by sleazy sales people sounds unthinkable. So where do they go. Look no further. We are going to dedicate a couple of shows a month to topics that will accelerate the learning for less experienced investors, and might give the most sophisticated investors a new way of explaining a concept that is otherwise complex to describe.

On today’s show we are talking about flipping. I’m hearing a lot of investors who are currently advocating shifting focus to house flipping at the moment. I’m really wondering what is behind that.

Market conditions that favor house flipping include:

1. The ability to purchase distressed properties at a deep discount to the market.
2. A shortage of supply for finished homes in great areas
3. Availability of construction labor and materials at low enough prices to make the numbers work.
4. Fairly fast movement of properties on the open market.

When pressed about why flipping is the strategy for right now, the answer invariably is the desire for short term projects where you can turn a profit in a short timeframe.

It is true that flips can be short term projects. But as in all real estate related projects you need clarity on the source of income.

Income can come in one of three ways

1. Earned income
2. Residual income
3. Capital gains.

These are the only three. Those engage in flipping activity are absolutely in that first category, earned income. You need to be doing transactions on a continual basis. If you stop doing deals, then the income stops. It is active earned income.

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