Introduction

The Most Common Perceptions of Fixing and Flipping

Thanks for reading our book! Fix and Flip covers a topic that is commonly talked about, but very little understood. There seem to be two common views about fixing and flipping real estate for profit:

Common View Number 1: Flipping Houses Is Not a Sound Investment Strategy

There are those who believe that flipping houses is fraught with risk. To some degree, they're right—if you don't know what you're doing. We've heard from people who think that fixing and flipping is some kind of scam—the flipper makes huge returns for little or no effort. But rest assured—the fix-and-flip strategy is far from a scam. It requires the same amount (or more) of due diligence and effort as a buy-and-hold or rent-to-own investment.

Our advice: ignore the naysayers. Fixing and flipping houses is not impossible, nor is the strategy a scam. It truly is possible to profit by fixing and flipping houses. What you'll learn from this book is that it's not a “fly by night” undertaking, and that there are some excellent reasons to fix and flip rather than buy and hold, even if you want to profit from real estate over the long term. One of the biggest revelations you may have is that fixing and flipping can be a long-term investment strategy, even while it provides a fast return.

Common View Number 2: Flipping Houses Is Easy

This attitude usually arises during a major boom in a real estate market. As with all real estate investments, fixing and flipping is easier to do in a strong real estate market (where purchasers exceed inventory) than a weak one. However, as we will teach you, successful fix and flippers will not rely solely on the market for their success. You can never outsmart the market, and we always recommend fixing and flipping strategically, in any market. A successful fix-and-flip investor will not rely on a strong market to turn a successful fix-and-flip project.

The misconception that fixing and flipping is easy is somewhat like a disease. Whenever people start to believe in this falsehood, the appearance of “easy money disease” causes people to do silly things. We've seen people buy properties at fair market value, spend tens of thousands fixing them, and then expect to make a profit. It defies all logic, because if you spend too much buying and renovating, and then can't exit for more than you've spent, it's the antithesis of profitability. Yet when people believe in the easy-money approach, they will make this most cardinal of errors.

A hard-charging market deludes people and, inevitably, there are fix-and-flip newbies who get stuck with an unsellable property on their hands. In the game of musical chairs, eventually the music stops, leaving someone without a chair; just like in musical chairs, some flippers are left out of the game when the music stops.

The Middle Road

The truth is somewhere in the middle of the two views we just discussed. Some people are full-time fix-and-flip experts. Of the two of us, Ian is a good example of that. Others use flipping as a supplement (or an accelerant) to their overall real estate investment strategy. Mark is a good example of that.

But even Ian, who flips houses full-time for a living, did not start out that way. He started out the way that we suggest you do it—slowly. First Ian was a full-time contractor doing the odd fix and flip, and then he was a part-time contractor/part-time flipper. Finally, he became a full-time flipper. How long did the entire genesis take? Eight years! This is not an overnight endeavour. We're not saying you can't build your business faster than that if you desire to be full time as a fix and flipper. But it will not happen overnight, nor should it. Take your time and make sure you have the right deal and that you're executing your strategy step by step. Use fixing and flipping as a supplement, and at the same time, keep your eye on the long-term horizon. You may or may not want to do it full-time. There are strong reasons for both, but for the most part the supplementary strategy is the best one.

This may be one of the most important themes of the book. We really want you to “get” this, because some of you may have bought this book with the idea of jumping from a different job in a different industry to becoming a full-time fix-and-flip professional immediately. We strongly caution against that.

Fixing and Flipping – The New Model

Most people consider the fix-and-flip model to be like this:

It's true that this is one strategy for fixing and flipping, but what will become very apparent to you throughout this book is that this traditional model of flipping is just one of many models.

Our model of fixing and flipping is the following:

Notice that the new model does not demand that you sell the asset. Through the value that you create as a fix and flipper, there are ways to remain the owner of the property and not leave any of your own money in the property. You can leave the bank's money in the property, and in certain circumstances you can leave an investment partner's money in the property too, but as a fix-and-flip investor, you will do everything you can to remove all of your own money from the property.

The new fix-and-flip specialists are sometimes selling and sometimes retaining ownership of the asset for future gain. Thus, when we say “exit,” we don't always mean to sell a property. Keep that in mind as you move through this book. Exiting a property does not necessarily mean selling. However, it does mean that you've removed all or most of your initial investment in the property, either through a sale or a refinance.

Is This Investment Strategy for You?

This kind of real estate investing is not easy. In fact, no model of real estate investing is easy, and it's not a quick path to wealth. There is no easy or quick path to wealth.

But in particular, fixing and flipping is very intense. There are strict deadlines—not the kind of deadlines that you may be accustomed to. Not the kind that come from a boss or a co-worker. These kind of deadlines are very real. They are the kind of deadlines that will cost you real money if you don't meet them.

There is generally more real cash put at risk when you start a fix and flip, so there's more of a chance of losing real money. Real cash means money from your own (or your investor's) pocket as opposed to financed money. The reason there's typically more real cash involved in a fix and flip is the added renovation expense. Carrying costs can also be higher, as you're working on the project before it hits the market.

We need you to ask yourself very carefully if this is for you or not. There is no shame if it's not. Treat it as a gift if you discover that it's not for you, and move on to what will work for you and what will make you happy.

By the same token, we don't want to scare you away from trying fix and flips. Doing it well is a matter of following the recipe and developing expertise. If you truly want it, you can do it. But, just telling you that you can do it is a simplistic formulation. There are considerations of time, family support, and money for such an endeavour as fixing and flipping. What we want you to know is that if you want it badly enough, you can develop the skills to do it. We never promise it will be easy.

If It Is for You . . .

If, after some soul-searching and research, you find that fixing and flipping is a strategy you would like to put to use, or if you have already done some fix and flips and want to get to another level, we suggest you think of it as a supplement or an accelerant to your existing career, or to your existing real estate investments. Especially at the beginning, don't try to make it your sole career. Do at least five fix-and-flip projects before you make that kind of decision.

Fixing and flipping can be a wonderful supplement to your existing career or your real estate investments. It can provide you with the one thing that most long-term buy and holds don't: significant cash in a relatively short time frame. And it can allow you to own a property long term with little or none of your own money in.

All this is possible only if you get the fundamentals right. Without a doubt, the two biggest fundamentals of fixing and flipping are the following:

You will see these themes recur over and over in this book, and many of the other topics we discuss in some way relate to these two fundamentals. The truth is that if you keep focused on these two fundamentals, and if you execute these two fundamentals correctly, then you will likely do well at fixing and flipping.

Through patience, practice, and focus, you can develop “the knack” for finding, fixing, and flipping properties. The knack is something you'll notice...