Is Flip This House beneficial or hurting the REI community?

[Andrew Nguyen]

I get a lot of new investor clients who are hypnotized into thinking the only way to make money in Real Estate is to flip houses. I try to convince them that the long term wealth is in Rentals and they should be focusing on diversifying their portfolio but to no avail. 

What are your thoughts on the flipping craze?

[J Scott]

You call these investors "clients"...are you a financial adviser?  

Flipping houses and owning rentals are two completely different business models and have very little in common.  For someone who doesn't have any savings and requires income to pay their bills, rental property probably isn't the answer -- generating significant income from rental property when starting with no cash isn't going to happen overnight.

Flipping houses is a *business* model -- no different than opening a restaurant or a shoe store.  It's active income based on the purchase and sale of inventory.  Rental properties are investments -- no different than buying dividend-generating stocks, bonds or other cash-flowing assets.  It's (in theory) passive income based on the ownership of an underlying asset.

The two have nothing to do with each other and can be used individually or in tandem to achieve different sets of goals for different people.  Personally, I flip houses because I want the active income; I don't like rental properties, so I plow that active income into non-real-estate assets that generate more passive income/cash flow.  That model is right for ME.  What's right for someone else is going to be based on their experience, situation, goals, etc.

To say one type of business is better or worse than another type of business or investment strategy is to miss the point (in my opinion)...