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An open letter to a client about house flipping.

An open letter to a client about house flipping:

I don’t work with flippers by choice. In my 11 years I have not seen one honest flip, all of them are about making short term money and most are not about doing the right things and doing things right. That being said, I don’t flip houses personally because I know the truth. I know that no one truly makes money at it that can rival the long term way that I, and very few have adopted. I’m more of a Warren Buffett value investing philosophy person than a flashy short term money flipper. The flipping clubs I don’t support nor agree with their philosophies and practices. Besides, I do have a reputation in the industry and city of exposing the bad work of flippers and I have a reputation of saving my clients thousands of dollars of damage and repair mitigation costs by avoiding bad flipped houses all together.

My way is the hard way, long and slow; I run a marathon not a sprint. My plan is 50 plus years and I know that very few want to do things my way because it’s hard and slow. Ultimately, my way wins by a long shot.

You have plenty of questions still to ask yourself, lots. Many of those questions I cannot answer for you. Building capital by flipping doesn’t work very well. How do you raise capital? You save and save and save some more. Then you are able to buy your first place, after that you need time to build equity. Once you have enough, you can refinance that house, then buy your next house and move into that one. The first house you can rent out. If you don’t want to move into that second house, you can simply stay in the first house and rent out the second house. You repeat this processs over several decades. You need to be mindful of tax rules and have a good tax strategy in order to avoid common and rare tax pitfalls. Here’s the punchline, you can do this without any partners using all of your own money and equity; I did and still do.

I get it, you probably don’t like this way, then perhaps you need to ask yourself more questions, how much time do you have, what is your risk tolerance, what is your level of day to day work, and do you work well with problems and people? School and career can be roadblocks to saving, they can also be gateways to more money to save, at this point, that’s your road to travel and discover. Remember, you get what you pay for and everything good in life takes work

I’m currently working with a buyer who conditionally bought a flipped house with me, Under further inspection, we found out that the house was on fire before, there is a crumbling foundation with basement walls which were covered up by framing, the electrical work was done bad, and they illegally advertised an additional bedroom that does not meet code, the list goes on. I’m not saying you’d do this type of bad work, or buy a lemon of a house. What I am saying is that in order to make the numbers truly work, often important things are neglected deliberately in order to try to make the short term cash. Let’s not forget about capital gains taxes, that’s a conversation for another day.

If you want to explore my way, we can talk some more. Right now, you are leaning towards flipping it seems. Remember, when you buy long term, the cost of entry isn’t that critical. When you flip, you need to pinch pennies and every time something’s got to give.

David Fouad
ACT Realty