Make Money Flipping Real Estate – Two Ways
November 17, 2007 by Steven Gillman
Of course you can make money flipping real estate in more than two ways. But when it comes to actually repairing and improving a house, there are two different approaches that are very different. You can do do as much of the work yourself as possible. That’s one approach. The other? Manage the project while others do all the actual repairs and other work.
Some investors will say that your time should be spent finding and managing properties, not painting or hammering nails. Otherwise you’ve bought yourself a job, they will tell you, rather than an investment. Although I tend to agree with that idea, nothing is that simple and definite. You can make money flipping real estate either way, and there are reasons for both approaches.
Doing It Yourself
A question: Do you make more money or less money when you do your own work? It depends on how you look at the matter. You might make more money on a given project. If, for example, it costs $3,000 in labor for roofing, and you do it yourself, you can make $3,000 more profit – if you work as fast as the professionals would have (there are holding costs to pay if you’re slow). But if you do a lot of the work yourself, you might flip just a couple houses a year, rather than the dozen you could do if you paid others to do the work.
What you do get working on your own, is a bigger margin of safety. At least you CAN get a bigger margin of safety, but those of us that aren’t as skilled in the building trades might screw things up and have to hire a professional afterwards. On a house with a projected $20,000 profit after paying for labor, you might save $8,000 by doing much of the work on your own. More profit perhaps, but it also means that if there are unexpected expenses or you guess wrong on what the house will sell for, you’re less likely to have a loss.
You might also consider your cash situation. If you don’t want to bring in other investors, can’t borrow enough money, and don’t have much capital, you can get by with less by doing a lot of the work. You could even live in the home while you fix it up. It’s easier to get financing, and if you stay there two years before selling, you don’t have to pay taxes on the capital gain.
Flipping Real Estate As A Business
As a business, there is no doubt that you have the opportunity to make more money paying for help. An investor I know flipped fourteen houses one year, something he never could have done if he had been painting the homes or laying linoleum. He never got dirty, and he made it clear that he thought his time was better spent finding the next deal, while his crew finished the houses that he was flipping.
What’s the best approach? Well, there is more money to be made finding deals than hammering nails, but what if you need a safe small deal to get going? What if you’re short on cash and can’t borrow much? Finally, what if you enjoy the process of fixing up houses?
They are all good reasons to do the work yourself, or at least some parts. The bottom line is that there is no absolute right way to make money flipping real estate.Changing ways is natural too. After all, investors can investors learn a lot by getting involved with the renovation work. That kind of experience might mean that you save money and make better decisions later, when you are just finding deals and letting others do the work. In any case, the choice is yours.
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