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9 Advantages Of Quick Cash Flipping Strategies
Anyone who enters real estate as an investor will have to ask himself a question of whether to go with long term rental properties, or short term flipping. And going long term is often the preferred choice not because it is more stable and secure, but because flipping properties for quick cash requires a certain set of expertise and commitment that many people don’t have.
It doesn’t require special knowledge or skills to buy a house and sit on it. But it takes artful planning and resourcefulness for one to profitably flip a house quickly. This is the world belonging to quick cash strategic flippers.
Yes flipping is risky, but the great part of becoming a flipper is that you can learn the skills and knowledge to do it successfully if you want to. The bigger challenge is to convince yourself that short term cash profits are better than long term capital gains.
I was actually a little appalled from reading a book recently. The author self-declared to be an expert by profiting from a handful of “buys and sells” over a number of years. All that was done was to buy, hold in a booming market for a few years, and then sell to profit from capital gains. If that makes the author an expert, then every homeowner who bought their homes during the period of boom is an expert knowledgeable enough to advise millions of others.
There’s nothing wrong with that strategy. But if the market was not booming as it was, this “investor” would probably have gone bankrupt on the second year.
You don’t need to be an expert to make money from real estate. Millions of people have done so. But if you intend to make real estating a full time job, you need to know how to flip. This is where the real money is. And you need to convince yourself why flipping can be very advantageous compared to holding for the long term. Here are some advantages to help convince you.
1) Lesser need for record keeping
It’s not that you don’t need to be clear and “on-the-ball” with record keeping. It’s just that you don’t need to do it over so many years. And as soon as you find a new owner to the house, the books on it is closed. Full stop.
With rental property, you need to keep records of rentals payments, security deposits, servicing and maintenance logs, expense receipts, etc. And you need to do this throughout the life of the property. It won’t be a surprise if you find yourself having to hire a bookkeeper just to keep up with these stuff. You need them to file your tax statements at the end of the year.
2) No risk of tenant lawsuits
You probably have read enough news to know that people from all walks of life can sue for all types of reasons. For millions of dollars I might add. In fact, some judgments are so ridiculous that you would think you were watching a sitcom on TV.
These things are very real. And there is always the risk of being at the end of a tenant lawsuit when you are the landlord. This should throw a spanner in the works if you thought that you hold all the power when you are the landlord. It could take just 1 judgment to send you into bankruptcy.
What’s the best way to avoid such risk? By not owning rental property in the first place. Just buy, add value, and sell. The buy-rent-sell model is meant for investors who are less committed in taking a hands-on approach to their properties. They then take on the lawsuit risk. Many don’t even know that they are exposed to this risk until they received the lawyer’s letter in the mail.
3) No need to get involved in homeowners’ committees
If you have ever been involved in homeowners’ committees, you probably have first hand experience of how ridiculous they can be. On top of that, you might even have to spend countless hours attending to problems within the area that have nothing to do with you. And then you have to pay a monthly maintenance fee as well.
Imagine having to attend one of those meetings where other members push for big projects that their units directly benefit from. Their proposals get approved and you have to pay for it even if the improvements don’t mean anything to you. Imagine the frustration that you have to go through that is eating into your cash flow.
4) No expenses, on maintenance, repairs, an improvements
It’s pretty amazing that when someone sells a house, he calculates his profit as selling price minus purchase price and closing costs. It is as if all the thousands of dollars spent between purchasing and selling do not exist.
If you don’t know what kind of costs will hit you, here are just some samples. Gardening, plumbing, new paint, roof replacement, rubbish disposal, pool maintenance, pest control, security services, etc. if you can’t see how large these costs can add up to, you need to get back to basics before investing in real estate.
5) No insurance
Related real estate insurance policies belong to those product categories that just leave you gritting your teeth in exasperation. On the one hand, you can never find a genuine reason to file a claim. On the other hand, you know that you could be leaving yourself too financially vulnerable if you don’t buy it. You can totally get rid of this problem by putting yourself in a position where it doesn’t even come into the picture.
No need for fire insurance. No need for home contents insurance. No need for mortgage insurance. No need for hazard insurance. No need to increase your liability coverage. Sounds good doesn’t it?
6) No property tax
Another expense that can leave you gasping is property tax. Sometimes you do wonder why there is a need to tax property at all. you bought the house. You paid for it. And now you have to pay a recurring fee to keep it? Why don’t they just charge tax on personal property and virtual property as well. Then give money to those with no property.
Anyway, property tax is a way of life. You can’t get away from it if you own property. The best respite? Don’t own one.
7) No recurring monthly payments
Your biggest fixed cost is the monthly mortgage installment each month. You are correct to think that monthly rentals will cover it with extra to spare. But don’t assume that that is a given. You also cannot assume that you will experience no vacancies.
The destructive power of a mortgage can only be observed when you look at the full breakdown of your loan repayment schedule. Only then will you realize that you could be paying more than double the original loan quantum you borrowed over the tenor of the loan.
You could argue that you are building up equity which will come in handy when you eventually sell. But remember that your equity is based on the value of the house, not the accumulated mortgage payments. You could actually just breakeven when you sell!
But enough about that. The biggest headache a mortgage liability brings is the cash outflow on an monthly basis. And a failure to repay will mean a default which can compound into bigger problems. If you are dependent on rental collection to repay your mortgage, you are walking a very tight rope.
8) Landlording nightmares
It is an understatement to say that landlords wake up occasionally in the middle of the night screaming in their beds due to tenant issues.
Are you ready to take on the role of a landlord?
It is a service job where the customer is always right. And whenever you ponder whether to deviate from the “customer is always right” slogan, the fear of a vengeful tenant sabotaging your house presents you a dilemma where the choice is obvious. You suck it in.
You are expected to put on your best behaviour to please your tenants so that they will not destroy your property and that they will pay their rentals in a timely manner. And all this so that you can continue to repay your mortgage to prevent men in suits from foreclosing the house. Why push yourself into a corner like this?
9) Quick flip = quick cash
The biggest advantage that flipping has over landlording is that the former is a game of fast cash. It might not be the most profitable on a per house basis. But quick cash allows you to rinse and repeats quickly to multiply the number of times you can turnover the available cash.
If you can make 50% profit from buying, renting, and eventually selling a house over 5 years, imagine that you can exceed that return by flipping 3 properties a year at 20% each. And 3 flips a year is a very conservative number for real estate players who are truly in the game.
In addition to that, by keeping your cash moving from asset to asset, you have a lower risk of getting caught in a losing position should the market crash.
The biggest problem with long term real estating is that it takes too long for too little money to be made. Are you doing that voluntarily or just following the crowd?
Most people cite the lesser risk of long term property investments as being a dominant factor to choosing the landlording route. But there are many other disadvantages that do not get enough attention from new investors. If you weigh everything through, you might just find that flipping properties for quick cash is actually the best way forward for you.