In the wise words of Andrew Carnegie, the steel magnate of US Steel “Ninety percent of all millionaires become so through owning real estate. More Money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
Is there money in real estate? Absolutely!
In real estate investing, there are two types of deals that you can take on:
- Buy and sell
- Buy and hold
Just like stocks, where some people day-trade to make returns, other people invest for the long term like Warren Buffet, world’s richest investor.
In your pursuit of financial freedom, you need two things to make the journey:
- Wealth aka passive income
Some investors focus on one type, at the end of the day, you will not get far without using both because cash feeds wealth and wealth feeds cash. It’s a cyclical cycle.
So is flipping houses a good investment?
I have trained hundreds of real estate investors across north America and many people start out with flipping houses.
If you have less than $100,000 cash in the bank, you need to practice “buy and sell” investing, once you have $100,000 banked up, you can go ahead and switch into buy and hold.
Generally flipping houses, as the professionals do it, follows this formula:
Your ARV (after repair value) is 100 cents on the dollar.
- You need to buy at 40 to 60 cents on the dollar
- Fix to 70 cents on the dollar
- Sell at 100 cents on the dollar
- Cost to sell is 10 cents on the dollar
- Net profit 20 cents on the dollar
After financing you may net anywhere from 10-15 cents on the dollar if everything is done right.
So lets say you have a house that you can flip for $200,000 that’s 100% of ARV
- You buy for $100,000
- Fix for $40,000 (kitchen, bath, flooring, paint)
- Sell at $200,000
- Cost to sell is $20,000 (realtors, discounts, staging, utilities, taxes, closing costs, lawyers etc.)
- Profit $40,000
- Then pay your financing $10,000 to $20,000 depending on your cost of borrowing (typically 8%-18% with hard money lenders)
Your net profit should be $20,000 to $30,000 on that house.
The question now, is are you happy with $20,000 to $30,000? If you are, then flipping houses might be for you.
You can flip a house every 6 months with the same money and earn a very nice cash yield.
So you decide, is flipping houses a good investment to you? My company moves 50-100 homes a year, so do the math.
Respect The Grind,
P.S. Go to http://stefanaarnio.com/book to get training on how to fund your flips.