Is house flipping a smart way to jump into REI?

Question

Hi BP Community,My wife and I are looking to get into the REI game and exploring our options as to what our first strategy could be. In talking with people already in the game, many have told us that long term rentals right now are not a great option due to high home prices and higher interest rates; they would be very hard to cashflow aside from a sizeable down payment.What these same people have recommended is fixing and flipping right now, since homes are still selling. One BP community member I got lunch with yesterday told me successful flippers avoid minor cosmetic repairs such as paint, trim, floors, etc. due to a glut of investors all trying to do the same. They instead focus on fully gutting their projects and install entirely new kitchens, bathrooms, fireplaces, accent walls, etc. and any exterior or mechanical upgrades necessary.While I understand this whole hog strategy, part of me says this will end up increasing the value of a home so far beyond other homes in the surrounding area that it wouldn't sell for what it's likely worth. (maybe this is area dependent?)For any successful flippers out there, what strategy have you found the most success in? Minor cosmetic repairs only? Full interior gut and remodels? How did you get started in with the fix and flip strategy?

And finally, do you recommend a fix and flip as our first REI endeavor? We both have some home repair skills, but would likely need to hire out larger work such as electrical, plumbing, roofing, siding, etc.

Thanks for the help!

Matthew Paul · Answer

Flipping is also affected by high home prices and higher rates . You have to remember you make your money when you buy the house . You dont buy right you will lose . With out experience , a fix and flip is very risky . Even with experience its risky . I have some guys that are sitting on houses because they went over budget , and over improved for the neighborhood .

Have a exit plan .

Carlos Valencia · Answer

Hi Gabe,

I am not an experienced flipper but from what I've seen and what I have learned from other experience flippers is that best way to get into real estate investing is by wholesaling. When wholesaling you will learn how to underwrite deals and be able to spot them. The goal for a wholesaler is to find a good deal and bring it to the investor and have the investor buy it and they do all the work while you are able to add your fee as your like the middle man. Depending on how much revenue you are trying to make per deal is how much you will charge. This way you can begin making money in real estate so when your ready to pull the trigger you will already have more knowledge on how to look at a deal and the money to invest in making it happened. One last tip I've heard from flippers is to try to find an experienced flipper/investor that is willing to partner up with you on the deal and use their experience to get the hard money so you can get a lower interest rate so that doesn't eat more into your margin. As a new flipper with no experience Hard money can be really expensive that's why its best to try that approach to partner up.

@Albert Bui @Matthew Kwan

Frank Huang · Answer

Can't agree more. Contrary to how youtubers glorify the profits, property-flipping is essentially a value-add/opportunistic strategy and the key risks you, as the investor, are taking are 1) asset prices, i.e., how well will the market be when you sell the property, and 2) capital expenditures, i.e., can you financially efficiently improve the asset to the end users (renters or users). Starting small-size and less levered are always good ideas in the early days.

Theresa Harris · Answer

Not a good idea for some of the same reasons-high costs of purchase combined with inexperience and renos gone bad/out of control.  Doing major renos you may have the potential of a higher return, but at a much higher risk.  Timing is also important as you want renos to be completed during the peak selling time (usually late spring into summer).

Bill J Fay · Answer

You have some great advice to your post already.

I would suggest having a backup plan in case your flip cannot sell. Do you have the funds to refinance and keep as a rental? You will only make as much as someone thinks the ARV is worth. Having a backup plan will help you ride out a bad storm.

Evan Polaski · Answer

@Gabe Morrell, real estate is hard to get into now.  Doesn't matter your strategy.  Prices do feel very high (but will we look back in 10-20 years and think, "wow, prices in 2024 were so cheap"?)

While I agree with your friend that full guts are almost the only way to find yield in "safe" areas, it is all just moving risk around.  You can go into the cheapest, worst part of town and probably get a house for cheap that only needs more cosmetic upgrades.  But, then you are buying in the worst neighborhood of the market.  Or, you can buy in an area where incomes are higher, crime is lower, and more qualified buyers want to live there, but then the cosmetic upgrades leave no margin (almost every owner-occupant is willing to repaint and refinish floors over time).

The only "sure fire" way to get into real estate with less risk is to keep saving and have more money at your disposal.  A rental, bought all cash, is going to cash flow and let you learn the ropes and make some mistakes without being overly burdened financially.  Or a flip, owned in cash with huge backstops of reserves available if needed, will let you learn with less risk.

All told, none of us know the future.  I personally, don't think real estate is the smartest place to invest for MOST people right now, at least financially.  But if you generally like construction and hunting for deals, than flipping might be the right place.  But know those first, likely, few, you goals will be to break even or turn a small profit (a big profit is great, but less likely).  You would be doing it for an investment in your education and the next deal, not necessarily to make a year's salary with one flip and call it a day.

Jacob Sherman · Answer

fix and flips are a great way to build your bank up

Matthew Paul · Answer

If you are watching any of these home rehab shows , I will tell you straight up , they are BS . I just did a total rehab on a house we were moving to . My wife was "excited" ( she watches those shows ) . After she helped and experienced it she realized how much more goes into it as far as time and especially $$$$$$ .

I am a contractor , I have trusted subs already , but they just dont show up when you need them , they are on other jobs , there may be a week or so , nothing gets done , and this may happen 4 or 5 times during the project .

I have found that if its a good enough deal to flip , its a good deal to keep as a rental , sometimes better , as a rental you do a quick repair and cosmetic update and rent it out , and in maybe a couple year it has appreciated , you then do a remodel and sell and you have made much more

John Mason · Answer

Exit plan would be BRRR

John Mason · Answer

This may help you..https://www.flipperforce.com/how-to-flip-houses/chapter-4-ho...

Is house flipping a smart way to jump into REI?

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