Part 1 – Fix n Flip vs. Buy & Hold
In this Investing in Real Estate the Smart Way article series, I’ll be discussing the difference between trying to get rich quick flipping houses and putting together a true real estate wealth building strategy.
Before I get started, I want to let you know from the outset that here at The Equity Finders, we don’t consider fixing and flipping houses to be investing in real estate at all. Fix n Flip is a “buy low-sell high” retail business in which you may have to pay to sit on your inventory for longer than expected. Investing in real estate is about leveraging your money and letting it do the work for you to ensure long term growth and profits.
Let’s talk a little bit about what is so appealing about Fix n Flip and why so many entrepreneurs have bought in to the notion that it’s a quick and easy way to create wealth.
We’ve all learned on those television infomercials just how easy it is to locate a rundown house that’s just waiting for you to pick it up at a bargain price. Use some “No Money Down” creative financing tactic to buy with no money out of pocket. Then put a few thousand dollars into some new flooring, countertops and a new paint job. Put it back on the market. And voilà. You walk away with a suitcase full of cash!
But what nobody ever talks about is that in many cases, fixing and flipping a house is a pretty high risk undertaking in which many people lose some, if not all of their investment.
Don’t get me wrong. There are definitely profitable opportunities in the Fix n Flip arena, provided you are able to acquire a property way under market value,complete all the necessary repairs and re-sell that property in a relatively short period of time.
What is usually left out of the equation is that unless you’re fortunate enough to be sitting on a pile of cash, you must be willing to take on the risk of taking out high interest, short term hard money loans and deal with the fact that these high carrying costs can and will eat into your profits very quickly as you or your contractors are submitting plans, dealing with the permitting process and making the necessary repairs. Not to mention additional fees and closing costs you’ll encounter when re-listing the property for sale with an agent.
I don’t mention any of this to discourage you. And I’m quite certain that there are many who may read this and disagree with me completely. But as a real estate agent, I have seen first-hand more than a few investors make costly mistakes. So it would be remiss of me not to mention that there are many unforeseen factors, which can lead to cost overruns when it comes to the Fix n Flip model.
In part 2 of this article series I’ll be using some simple math to show you how you can leverage your cash on hand to earn a 40% to 60% or more annual return on your real estate investments.
In the meantime, whether you are a fix and flipper or a buy and hold investor, there is no better way to locate and research profitable real estate deals than our Smart Map Comping System. Smart Map is provided as a free service to our clients. Be sure to visit www.TheEquityFinders.com for complete details.
by Laura Leatherdale