Yo… Flippin Ain’t Easy:
Flipping is one of the first things people think of when they consider getting into real estate investing- “flipping” being the process of buying a house for below market price, fixing it up and selling it to make a BIG chunk of money.
Shows like “Flip or Flop” on HGTV, make flipping look like a piece of cake. The truth is it’s a tough job.
When I say job, I mean job. Flipping isn’t a passive income situation like having rental property or owning a note, which pay you each month with minimal continued work.
Flipping, however, requires you to design the rehab, line up contractors, do work yourself and buy materials for a solid month. You literally put in 40-plus hours a week until the project is completed.
The toughest part comes next.
This job only pays when the house sells. That means you regularly go six months without a paycheck. I heard a wise lady say realtors, investors, and attorneys are all volunteers until the house closes. Boy was she right.
Can you go six months without a paycheck? Consider that aspect before you quit your day job and decide to flip houses for a living.
An ideal flip takes 91 days from start to finish. Why 91 days? Banks require an investor to hold the property for that long before they’ll lend to your seller. They call this “seasoning.”. Most flips, however, take longer than 91 days.
The longest flip in our career took 10 months. We did a beautiful 30 day rehab and got the house on market right before school started.
One night, a realtor called and said they heard water in the house. Those words will stop you in your tracks! I high-tailed it over to find that a supply line under the sink had busted and had been running all weekend. The normal $15 water bill was over $100. (That’s a lot of water on the floor.)
This caused the tile to crack in the kitchen, and we had to pull it off market to redo the floors. This put us way over budget and into the slower winter market by that point.
Making a huge chunk of cash is what makes flipping so attractive- right? Let’s look at that. A good profit on a flip is 20 percent of the selling price. If the median house sells for $150,000, you’ll make $30,000!
So, $30,000 … don’t all those zeros feel good? You likely forgot one thing though… taxes.
The IRS treats flipping as if it were a job. Any profits you make are taxed at your income level, plus Medicare and Social Security tax. That’s 40-50percent of your profit gone before you see a dime. WOOHOO!
So taxes will reduce your profit to $18,000. OUCH!
Still, $18,000 isn’t bad. That’s $3,000 per month if the deal took six months to complete. The math on that comes out to $17 an hour. That’s not a bad gig, but it’s a job nonetheless.
Flipping your way to financial freedom isn’t common. It’s time-intensive and highly-taxed. Plus, you have to continuously be looking for the next house- otherwise your income stops.
How could you retire this way?
Yo, flipping ain’t easy and it is a job; however it’s also an important tool used to gain assets. The savvy investor will use their flip profits to invest in rental properties.
Let’s say you took one flip and bought a doublewide on an acre of land, fixed it up and rented it out for $700/month. That one deal will make you an extra $8,400 a year forever!
How may of those would it take to replace your income? My guess is not many. That’s the way you retire my friends, and that’s why you should be flipping.
Joe and Ashley English invest in real estate in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com