How do fix and flippers grow wealth?
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
Now before and the buy and hold people come in and tell me how that is the only way to gain true wealth, semi-passive income, and reap all the tax benefits, thank you but I know that already. Now, for the fix and flippers, I am curious what you do with your flips profits once you have successfully scaled your business?
I have heard many flippers on the podcasts saying that they eventually start holding some of their flips, but what if your market's rent to value ratios don't make sense for buy and hold? It seems to me that the quickest way to scale a business and make the best return on your capital(once you are educated and have a large nest egg to invest) is to begin flipping or BRRRRing properties if renting making sense. My question is for people in say the southern California area that flip, do you buy out of state turnkey to grow your passive income streams, invest in syndication deals, look for boots on the ground to buy rentals out of state, index funds, or just plan to fix and flip until you can't anymore?
Bill,
Syndication is a strong consideration. Flipping is a business, use the profits from that and invest passively in syndications placing your money with experts running the show and take advantage of the tax laws. @Bret Ehlers mentions investing in debt and that is a way, but I don't like that in taxable accounts as it has no tax advantages. If you have a SD-IRA or Roth 401K, put lending programs in these vehicles. For your taxable accounts you have a wide variety of solid choices that are trending well now and look solid for the future based on demographics. The real estate laws are such that deprecation, mortgage interest and property tax deductions shelter a lot of your income. Returns from these types of investments are in the target of 8-10% preferred returns annually and can achieve up to 15 - 20% IRR over the holding period. These programs in a taxable account typically will outperform lending programs after tax. I currently prefer large value add MF apartments, mobile home parks and self storage. There's a lot of ways to play here but usually the key to entry is accredited status for many of these deals. Some background on why I like these niches.
https://www.biggerpockets.com/blogs/9145/63405-syn...
https://www.biggerpockets.com/blogs/9145/53820-why...
Good Question Bill,
I like participation in Financial Resources and Hard Money Lending with my profits.
The money is secured with a guaranteed return of 8% to 10%.
No Tenants, Toilets, Trash or Turnover.
Love that residual income.
I'm Glad You Asked.
Bill, I have long time friends in the national funding business who vette the deals. I am very well protected and hands off. You are correct on the value of my time. I want to spend time wit my wife, travel and enjoy life. My time is better spent doing what I do best and having them do what they do what they do best.
I'm Glad You Asked.
Bret
Bill,
Syndication is a strong consideration. Flipping is a business, use the profits from that and invest passively in syndications placing your money with experts running the show and take advantage of the tax laws. @Bret Ehlers mentions investing in debt and that is a way, but I don't like that in taxable accounts as it has no tax advantages. If you have a SD-IRA or Roth 401K, put lending programs in these vehicles. For your taxable accounts you have a wide variety of solid choices that are trending well now and look solid for the future based on demographics. The real estate laws are such that deprecation, mortgage interest and property tax deductions shelter a lot of your income. Returns from these types of investments are in the target of 8-10% preferred returns annually and can achieve up to 15 - 20% IRR over the holding period. These programs in a taxable account typically will outperform lending programs after tax. I currently prefer large value add MF apartments, mobile home parks and self storage. There's a lot of ways to play here but usually the key to entry is accredited status for many of these deals. Some background on why I like these niches.
https://www.biggerpockets.com/blogs/9145/63405-syn...
https://www.biggerpockets.com/blogs/9145/53820-why...
@Bill Goodland the truth is (IMO) you can't build true wealth (50k/mo or more) in real estate investing without owning at least one business that generates enough cash flow to allow you to buy more assets! If that doesn't make sense read the first few rich dad poor dad series books until it does! :)
For me, I started and have scaled a property management firm to generate the cash flow needed to purchase more assets. My second business (not first; property management infrastructure came first for me!) is syndicating apartment deals. This also generates cash for assets because I'm rewarded with the value added by "putting it all together."
Robert Kiyosaki did it big by growing an education company. What's your talent? What's your income goal? Mine is 100k/mo passive! (1.2million per year divided by a 12% return on my apartment deals equals 10,000,000 in equity!). Only the biggest and the baddest get there by flipping deals and they take enormous risk (too much for me) to do so. "Flippers almost always, eventually flop. I won't achieve my passive income goals (long before I die!) unless I have other, cash flow generating businesses that will help my purchase more assets.
Passive syndication is a great strategy IF you're generating cash flow elsewhere!
Now go get it my brother!!
Flipping will create cash that can be used to by passive investments.
Flipping is a job that you have to keep doing, passive creates wealth that makes money while you are sleeping. You create systems for your rentals so that they are almost entirely on autopilot. I take care of my rental portfolio with a couple of text messages per week at most. I check my bank account to make sure everyone is paying on time. Once the tenants are properly trained it is easy to manage.
I flip a house or two for fun not because I need it to pay the bills or maintain my lifestyle.
It all comes back to Rich Dad Poor Dad. Let your money work for you, not the other way around.
I guess it depends how you define, "wealth".
To some folks, it means "net worth" - a strong balance sheet.
To others, it means a cash flow - a strong P&L.
I'm sure there are many hybrids in between ...
@Bill Goodland you have the makings of a great plan. Only you can decide which businesses to pursue. Be mindful of where you get advice.
@Bill Goodland I am a flipper....my partner and I have used flipping to replace our 9-5's as consultants, since we love it so much. I am not looking to sit home and do nothing, so if I'm working (been self employed since 2001) I want to spend it doing something I love, flipping. And it makes great money.
Now, we are beginning to get into multi-families here in LA. South LA and San Bernadino are areas we are looking into for long-term passive income.
So, you have to pay bills somehow NOW...and multifamilies or SFR rentals will not do that right away...so if you want to transition form your day job to being 100% in real estate, flipping can do that...where as you need some major volume to live off of multi-family investing right away.
Onwards!
sjw
@Bill Goodland If I were in your shoes I'd do what you want to do. I wouldn't wholesale to get enough capital to flip and flip to get enough capital to buy-and-hold. I read that around the forums a lot but I don't see nearly as many people talking about how they successfully executed (key: past tense) that strategy. If you do buy-and-hold then you gain appreciation over the long-term, someone else (tenants) is paying down the mortgage, and maybe you squeak out some cash-flow in the meantime. If you're flipping then you're constantly on the search for the next flip. You always have holding costs, there's risks in overages, etc. But if you do it well you'll make more in a single flip than the profit a similar cash-flow property would generate in a year. However, I'd imagine that you have to market to find "great deals" you can't really do it in a passive fashion, etc. So you could easily hold down a 9-5 (generating income) and have out-of-state properties that are managed for you (passive income). How does that compared with the potential of full-time flipping income? Well that probably boils down to a bunch of personal scenarios that make it tough to generalize.
My net recommendation, do what actually got you interested in real estate in the first place. I'd never try to talk a flipper into a buy-and-holder, I'd never try to talk a HML into joining a syndication, I'd never try to tell someone who loves being a part of a large syndication to buy an SFR in Iowa, etc. There are so many avenues that they all (done right) make money. My belief (and I'm not saying it's correct) is that "done right" is more important than the particular avenue you choose.
Here's another perspective to add to the mix ...
As a fix-and-flipper, you're only as "rich" as your next deal. It pays once, then you must "lather, rinse, repeat" to get more income. Even outside of RE, you can only sell stuff once. On each sale, you must get enough profit to buy the next (whatever) wholesale so you can sell it retail, and repeat that cycle.
As a buy-and-holder, you get less "instantaneous" cash flow for a longer time (until you sell), AND you build equity as the rents pay down the buildings / houses.
The two are certainly not mutually exclusive - you can do while also doing the other, depending on the the strategy which best fits any specific deal.
"It depends" what you're looking for at any given time.