1. Flipping is speculative, and that makes it no better than stock market investing.
You see, any time that you buy an asset with the intention of making money when you sell that asset, you are not really investing – you’re speculating.
Investing should be thought of as acquiring an asset that produces cash flow, such as a rental property or a well-run business. Speculating is when you acquire an asset with the hope that you bought it low and you plan to sell high, such as flipping, stock market investing, and buying art or other collectibles. For that reason, flipping is a risk because you don’t really know if you can sell high. Side note, if you have an interest in art, you might want to check out www.f22fineart.com.
2. Flipping is very time and work intensive.
Flipping is like stock market investing because it’s really just speculation (buying low and selling high) but it has one advantage over stock market investing and that is: you can influence the price of the investment by making improvements to the asset.
So you gut the interior, install new cabinets, a new coat of paint, and improve the landscaping. Problem is: if you want to make improvements, you have to either spend your own time doing this, or spend your hard-earned money to hire someone else to do this. Whether you do it or someone else does it, there is a cost to you.
3. Flipping is extremely price sensitive.
First you have to buy the property low enough. The low purchase price is really the secret weapon of flipping, yet very few do this effectively – many usually just buy cheap houses that they found on the MLS. Then it’s just one expense after another until you sell: permits, contractors, raw materials, and so on. Before long, you’ll find your costs out of control and your tight margins even tighter.
4. Flipping is a surprisingly sensitive business.
It’s an sensitive business because at some point you will forget that you are running a business and instead you will start making decisions based on what you want to see in a house. You’ll discover this when you go into a Lowe’s or Menards to buy cabinets and appliances… you’ll walk past the ones that are affordable. You instead descend toward the ones that you like.
5. Flipping is capricious.
As soon as you buy a property, you’ll start discovering problems that you didn’t know existed such as mold or termites or wood rot. Or maybe you tear out the old carpet and wallpaper only to discover that the house is a historical artifact and now the city wants you to spend more to restore it to its original condition.
You can make huge sums of money… but you can also lose huge sums. It’s unpredictable, it’s emotional, it’s hard. Smart investors should not seek out investments that are work intensive, time intensive, emotional, unpredictable, and costly gambles. The kind of investment I’m recommending is something that is simple, predictable, cash flowing, and deposits money into your bank account regularly with little-to-no effort from you.
You get the investment returns and the income-replacing cash flow instead of swinging a hammer and sweating through a demolition.
Which would you rather have?