Three Reasons Why You Shouldn’t Fix and Flip Homes
Thanks to all these reality TV shows, everyone wants to buy some real estate and use the fix and flip strategy.
When I was selling real estate as a Realtor, working with investors, well, fixing and flipping homes isn’t investing, it’s a business, so can’t use the term investors!
Anyways, I would people calling me all the time, usually people whom never bought real estate, so beginnings, looking for single family homes that needed work.
And I get it, I did the same thing when I started buying real estate, buying properties to fix and flip.
Mainly because I saw the dollar signs I could make quickly fixing up properties and selling them, versus the long-term wealth I could build investing in rental properties.
At the time I didn’t know better.
All I knew was what I saw on TV and what everyone else was doing, so I followed the crowd.
Eventually I came to my senses and stopped fix and flipping homes and now focus solely on investing in multi-unit rental properties, being an investor, building wealth, and creating a residual, repeatable income vs when you buy real estate to fix and flip.
So why am I so against fix and flipping homes, well in this video below, I’m going to share with you three reasons why you shouldn’t use this strategy.
Reason #1 of why you shouldn’t fix and flip homes.
I myself have been there when flipping properties, and no matter what I’ve tried, emotion has come into play.
You are designing a home that someone is going to live in, and because of that, you start to project the home you want to live in when renovating the property.
This can and will lead to you choose higher end features, that eat away at the bottom line.
On top of that, your client, the buyer of the home you are going to sell to eventually, is purchasing it on mainly emotion when they are deciding when to buy it.
This is going to be their future home, and they need to be able to see themselves living there forever.
This can make negotiating very stressful, as they might not appreciate some of the quality features you used in the property, and be willing to pay what you are selling it for as a result.
On the other side, when you are single family homes to flip, to make money.
Well, in a hot real estate market like my market I invest in, in Windsor, ON right now in 2019, you could end up in multiple offers, competing against someone, a family usually.
Whom are looking to buy the property to make it a home, and not make a profit, which will result in them bidding up the price because they are using emotion, and are willing to pay much more for it.
When this happens on a property you are looking to flip, you need to keep your emotions in check so that you don’t overpay for the property, and walk away if it doesn’t meet your criteria.
When I’m flipping single family homes, is usually 70-80% of the after repair value (ARV).
Reason #2 on why you shouldn’t fix and flip homes.
YOU'RE CAPPED ON THE VALUE OF THE PROPERTY.
What do I mean by this?
Well when renovating single family homes, or condos, or anything someone is going to use as a home, all buyers and their Realtors are going to use comparable properties in the area to determine how much the property is worth.
This makes flipping single family homes very difficult and risky because no matter how much you might update the property, even if you spend tens of thousands of dollars using high end finishes to try to increase the value of the property.
Because if the home next door sold for X, you are most likely going to get near that price, and those features you thought were going to raise the value of the home a ton, didn’t at all.
When I was a Realtor, I saw this happen first hand.
The owners of a home had done the property to the nines, but when it came time to sell, no comparable properties in the area had sold for more then I think it was around $400,000, but my clients had over half a million into the property.
As a result, buyers, real estate agents, all used comparable properties to determine the value of my clients property, meaning they used nearby homes with the same amount of bedrooms, bathrooms, garage, etc., with similar features that were updated.
But obviously not as updated as my clients home, and as a result, everyone valued the property at around $400,000.
To most people, they don’t know quality, the price of the material used, they only see the big picture, and if the big picture is telling them a similar property sold for $400,000, then your property is also worth $400,000!
ACTIVE INCOME, NOT A PASSIVE INCOME
What that means is that once the home is sold, the money stops.
And to go make more money, you need to go and flip another home, to go and work more hours.
That is what I mean by an active income.
This is not investing.
This not being an investor.
This is working for your money, instead of having your money work for you.
It’s no different than a lawyer, or an accountant, or a nurse, or a Realtor, having to put in their time get paid.
Whereas passive income is generating a residual recurring income month in and month out.
Where you are making money while you sleep.
Where you are making money while working like I do, from home everyday.
Where you are building equity through having the mortgage paid down by the tenants at your rental properties, which for me was over $5,000 last month.
Where you are building wealth by the properties appreciating in value.
That is passive income. That is being an investor. That is investing in real estate.
So, forget fix and flipping, forget being hands on, and start investing in rentals, start being hands off.
WHAT TO DO NEXT:
If you’re looking to learn more on how to invest in multi-unit rental properties hands off, I have a FREE masterclass where I go through how you can make six figures a year investing in just ONE rental property, without lifting a finger.
You can sign up for it by clicking here or the image below.