Over the past couple years you and I have been hammered on TV with real estate flipping shows that depict these people making outrageous profits flipping homes and making it look easier than heck.
So, is this flipping stuff real? Well… it sure is. There are countless people out there making a darn good living flipping homes. But… the tv shows on flipping are darn deceiving when it comes to the “reality” of real estate flipping.
Is flipping real estate the best way to get starting in real estate investing? I’ll let you decide for yourself. However, in my opinion, for most people, especially in today’s down markets (not all markets are down… there are actually some doing really well), real estate flipping is not the best way to get started in real estate investing.
First, let’s clarify two kinds of flipping.
The Fix and Flip – Where you buy real estate, rehab it, and sell it to a retail buyer. The kind that is on the TV shows.
The Wholesale Flip – Where you buy real estate (or get it under contract), find a wholesale buyer, and flip the contract. The kind that is less glorious… but has a ton of money in it… with a heck of a lot less risk.
To me, the Fix and Flip method is not for most newbie’s… even though that is the kind of real estate investing you see on TV all of the time.
You need a good understanding of rehab costs
You need to have good funding… either from a private lender or a bank (private lender is preferable)
You need to be able to float the carrying costs if you can’t sell the property quickly
If you don’t calculate your costs just right… there may not be a whole lot of room for error… and room for error means greater risk on you!
The market is in a downturn… so there are less retail buyers out there for middle income houses… which is what most people start out flipping
There are many people out there making a very good living flipping… but most of them started several years ago… and have many flips under their belts.
They already have systems down, have marketing channels for getting buyers, have solid lending sources, etc. Not to say that new real estate investors cannot do all of the above… YOU CAN!
But, there are better ways to get started in real estate investing that allow you to get in with little or no risk or money, and will allow you to learn the Fix and Flip business before you ever take a huge money commitment to do so.
What’s the single best way (in my opinion) to get started in real estate flipping to minimize your risk and shorten your learning curve… all the while making nice money in the process? Well… obviously option #2 from above: The Wholesale Flip – or in other words… wholesaling real estate, flipping houses for quick cash, flipping contracts, etc.
When you wholesale real estate you do everything a flipper would normally do… except actually repair the property and sell it to a retail buyer. But, you don’t have the risk or time commitment that a fix and flipper has.
Basically, you as a wholesale real estate flipper (or wholesaler for short), find properties that need work that you can purchase at a large discount and flip them for a fee to a rehabber who will do the work.
Your job is to find the properties, analyze the numbers to determine the repairs needed, create an offer that enables both you and the rehabber that you will sell to to make a profit, and sell the contract to a rehabber who will actually make the repairs.
Often times real estate investors will make between $2,000 and $20,000 on a wholesale deal. So, for a low to no risk way to get started in real estate… there are huge profits to be had.
Another reason for starting out doing wholesale real estate deals is that you learn the ropes of what it takes to be a rehabber. After analyzing several deals and talking to rehabbers to find out what they look for… you will have a good grasp on what a good deal is, how to accurately estimate repair costs, who the rehabbers use as contractors, etc.