Episode 15: No Flipping Way! – The Case Against Flipping in Real Estate
While flipping is one of the most popularized and commonly discussed real estate investing strategies, it’s one that we actively avoid. In this episode, we share our experiences with past flips and some of the challenges and complications that make them one of our least preferred strategies. We’ll discuss the flipping variables to be aware of and if you are pursuing this strategy, what you can do to help ensure your success.
What you’ll learn:
- Why the unexpected or expected variables in flipping are not worth your trouble;
- Where can I earn a better return on my investment than real estate flipping?
- Why you should consider the Iron Triangle when making decisions; and,
- Why we think rental real estate is OUR bread and butter investment strategy.
Kyle: Welcome to the Invested Teacher Podcast with Kyle Pearce, Matt Biggley, and Jon Orr.
Matt: Get ready to be taught as we share our successes and failures encountered during our real life lessons, learning how to build generational wealth from the ground up.
Jon: Welcome, invested students. Hey, that's you. To another episode of the Invested Teacher Podcast. Let's go.
Kyle: All righty, my friends, we are going to dive straight in here and we're going to start checking ourselves around this idea, this fad, this social media phenomenon-
Jon: A fad.
Kyle: ... now everybody wants to dig into. That is flipping homes and properties. Here at Invested Teacher anyway, we're saying no flipping way, because-
Jon: That's bold.
Kyle: Yeah, yeah. We've been there, we've done that. And today, we're going to build a case for why flipping is not in our personal preference. Again, we're not going to say we'll never do flips, because guess what? Hey, we're currently doing one right now. But guess what, once again-
Jon: I was going to say we're doing one, but this is maybe the reason we're bringing this up on the podcast is because we don't want to do any more. Now, you said, "Fad," Kyle. Fad sounds like it's here and then it's gone. I don't know, I think this kind of method of investing and turning a profit or loss is here to stay. I don't think it's going to be a fad, but I think ironing out the details of what you are looking for and how it's going to work for you or not you. And I think like you said, Kyle, we're going to build a case of why we aren't going to do another flip. But Matt, fill us in on some details on maybe why we won't want to do any of this anymore.
Matt: I'm just picturing the HGTV show titles, and I think the way we invest in real estate is so boring, that I don't think there's ever been a show about multi-family buy and hold real estate investing. It just sounds boring, even though it's something that we just absolutely love. HGTV is full of shows about flipping. Let's be honest, we've all wanted to be a flipper at some point in time. We've seen the episodes or we've had to sit beside our wife while they watch the episode. And-
Jon: I mean, mine, in fact-
Kyle: That is the whole work part of it though, right, Matt? I want to be a flipper. I just don't want to do any of that work.
Matt: And as you said, we've done them in the company. There was a point in life where Leslie, where my wife and I had actually moved six times in eight years. So we had actually flipped those houses. It got to the point and Leslie really blew up on Instagram, we actually had a TV show pilot filmed about us that at first we were going to call For Never Home, because we didn't stay in these forever homes very long. And then they wanted to rebrand as the Big Family Flip, which I hated the name of. And we kept saying, "We're not flippers. We're not flippers."
But here's a primary difference we should know for our listeners. If you plan to live in the house and it's something you're renovating, that's different. We're talking about people who are flipping as an investment strategy. So let's differentiate right off the hop there. This is about being an investment strategy.
I literally got a call today from a client who bought a flip back in December, on the water, dreams of flipping this thing, needed a lot of work. He called me today and he said, "Matt, I'm in over my head." Conservation Authority had come in. Apparently he didn't pull permits, so he's got a stop work order. He's put a ton of dough into this thing. He's encountered challenges he didn't anticipate, and he sounded like he was in a desperate state of mind. So of course, tried to talk him down and talk him through and troubleshoot and problem solve a little bit. But I felt his pain because we have been there ourselves. And today, we're going to explore some of the challenges that we've experienced with our past flips as part of bringing awareness so that if you decide to become a flipper, and certainly we'll talk about some people that maybe flips are great for, you can-
Kyle: Yeah, totally.
Matt: ... at least proactively address some of these challenges and variables, so this doesn't become the unraveling sweater that I was dealing with this morning with this poor client who's now awfully stressed out.
Kyle: Yeah, absolutely. That's just one example, Matt. And I'm so happy that you differentiated between what you and Leslie were doing. The work that you and Leslie did was of course you were like, "Hey, we're hoping that there will be a profit at the end." But ultimately, you loved the process, especially Leslie. Knowing Leslie, if you ever have the pleasure of meeting Leslie, those who are listening, you will see someone who is so artistically creative and has so many amazing ideas. Sometimes even just how she describes certain things, I'm like, "I have no idea what you're talking about, but I'm sure it's beautiful."
Matt: Neither do I. Neither do I.
Kyle: It's great. Yeah, absolutely. And the work that both of you have done, I believe we chatted about in one of the early episodes. So check out @thelesliestyle on Instagram. You'll get to see all of that awesomeness. Amazing.
But your number one goal there, I would argue to almost up yourself and we'll call it ladder climb from one property to the next to the next where you're adding in sweat equity, you're adding in obviously investment of time and energy and the cost of the products you need to put in there and the construction you need to put in there. But ultimately, as you're building this equity in these properties and you use that, and it wasn't like you were just going from this property that's worth this amount to something worth the same amount. It's like each time, you got to climb a bit, climb a bit, climb a bit.
Such a cool and awesome strategy, especially if in your mind you're going, "I love this house and how it turned out so much that I could see myself staying here," right? I think that was always in the back of your minds. I know that that's not who you are as people. You enjoy the moving and the newness. But ultimately-
Matt: The designing.
Kyle: ... if the market went against you and it was like, "Shoot, we can't sell this thing for a profit, you would've been like, "All right, I guess we're staying here," right? Current mortgage, as is, here we are and we're ready to go.
Whereas when we look on the other hand, when they say, "The big flip," I love it because you're Biggley and the big flip. I like that part. But then you needed-
Matt: It had a ring. It had a ring.
Kyle: ... that word "flip" in there because people love the idea. The idea of a flip in general is that essentially it's like as close to getting rich quick in real estate as you possibly can. But the problem is is that all the work, and especially when you watch a 30-minute episode and they're only, what, 22 minutes with commercials, right? When you take the commercials out, you've got 22 minutes to see this massive transformation, typically with all kinds of donated materials, all kinds of best pricing. The contractors are great and timely.
Jon: Everything lines up, yeah.
Kyle: Everything lines up perfectly. We have not, at least when it comes to... And I'm going to argue, Matt, you can confirm or deny this, we have not had it that smoothly even in your own homes that you've done in terms of it just being quick, perfect, not that expensive. It always seems to blow up, and we've had that same experience.
One thing I do want to sort of address is, Jon, you said why we will never do a flip again. We'll never say never, because every time we end up in this situation where we're in the next flip like we are right now, is because the opportunity felt really awesome and we still end up not enjoying it at the end.
So imagine people who rush into it, right? If you're new and you're listening to this and you're going, "Wow, I want to get into real estate," it's like if you're thinking flips as your first opportunity or bet, just make sure that you know what you're getting into. You probably want to be handy and you've got to have some patience and you also have to have capital.
And just know that the market is changing. The market has changed. And for a lot of people, just like that person who called you this morning, Matt, that person, about a year, maybe 18 months ago, I bet you you don't get that call, because no matter how long, how expensive, the market was just booming to the point where it was like you could have done anything as slowly as possible and still probably could have turned a profit, but it wasn't because you were good at what you were doing, it was just because the market condition supported it. Whereas now we're in this position where, hey, if the budget doesn't line up, if the timing doesn't line up, and guess what, if the quality isn't there, you are dealing with some problems.
Jon: And I think when we think about flipping, the average person, when they think about real estate, this is my guess, and maybe this is because this is the way I thought about real estate and getting into real estate, flipping was the way to go. And maybe it was TV, maybe it's the fact that you don't immediately think that you have to deal with renters.
Renting for me initially wasn't a thing because look, you can buy a house, you can pay a contractor to fix it up, and then you can sell a house and you're supposed to turn a profit. That does sound pretty awesome because it's short term, you're going to get your money and then you can put it somewhere else, you don't have to deal with any renters going, "I didn't pay on time," or you wrecked something. I know there's a lot of things that draw people to this, and that's probably why they make TV shows about it too. And why I think the population thinks about flipping at this time now versus the slow, the more secure way of rental is that you don't have to deal with all these other hassles, right? There's a different set of hassles that we've talked about since the inception of this podcast of how we can mitigate those hassles on the real estate investment rental side of things, versus, "Hey, I can buy a house and then turn around and sell it."
So guys, tell me, what are some of these... Kyle, you kind of mentioned about the market timing. Matt, is that all that's preventing this? Because it's like, "Look, I can buy a house. If the market doesn't keep going up, yeah, I might not be able to sell it, so I might sell it as a loss. That doesn't sound great." But is that the only thing that we should be thinking about when we're getting into flipping? Or what are some of the other horror stories or reasons that you're saying no?
Matt: Yeah, Jon, I think Kyle addressed some of the variables, and maybe we can tease them out a little bit further here. Part of this comes back to your whole reason for investing in the first place. For us, it's been a passive second source of income. It's not our primary source of income. None of us are contractors. I used to try to get very involved in the construction part of things, but I've learned I'm better with a phone than a hammer. That's where my strength lies.
So one of the variables Kyle talked about was the market. Listen, none of us have any control over the market. Market is consistently fluid. It's going up, it's going down, and we can't ever confidently pin our hopes and our expectations on where the market's going to be at any given time.
Listen, last year, we had essentially eight different markets because the interest rates were hiked eight times. And with each hike, we had a new real estate market. So it's very, very fluid and it can be incredibly inconsistent. Despite having years of record growth recently, we had a very, very tumultuous last year and a lot of people got caught in that market variability.
One of the other variables is our timelines. Listen, I'm literally closing... I sold a flip. Yes, I know, I did one. I did one despite here I am beating them up. I did one that I purchased back in May of this year. I got it for a great price. I knew enough to hire a professional contractor with a contract. While it was supposed to be three months that flip was supposed to take, it ended up taking over six. So we had that variability of the timeline. Even with a pro in place, they just encountered things. We call it the unraveling sweater with renovations, because once you start to take things apart, you just don't know what you're going to find. So contractor delays are a huge variable. Sometimes material delays in those timelines can be a variable as well.
Another major variable, the contractors themselves. Oh my goodness, I have certainly dealt with my fair share of them. I have incredible respect for what they know how to do, and with renovations especially, what they know how to fix and problem solve. But when we talk as teachers about maybe who different sort of students are and what pathways they end up taking in life, sometimes those that have gone into the trades, at least in my experience as a guidance counselor, are those that didn't necessarily feel drawn towards those more academic university type pathways, which sometimes meant, and maybe I'm extrapolating too much here, but that sometimes meant that they weren't always the most organized or timely or those type of things, that those skills that maybe came later in life and learned on the job. Well, these people are now our HVAC technicians, our electricians, our plumbers. All amazing career pathways because the money they make is incredible, but as adults, sometimes these skills are still in progress. So contractors are notoriously challenging to get ahold of, to hold accountable, and to meet deadlines. So the contractor variables for sure.
Cost is another major variable also. You're going to have a budget when you start, but inevitably there's going to be cost overruns, because again, that unraveling sweater as it comes apart, you don't know what you're going to find. You don't even know about material prices. Just like with the housing market, the lumber market and some of those raw materials, some of those things you need to finish off your house, the costs have doubled and tripled over the course of the pandemic. So I think the cost variable is really difficult as well.
And then there's just the unknown variables. Like these guys that are calling me today, it sounded like they didn't even think they should have pulled permits and they got busted. So they didn't even know what they didn't know, which for them was a variable that they couldn't control. And of course with experience and time and the right team, you can control as many of these variables as possible. But in the case of this property that I'm selling this week, I bought it for a great price, I hired a pro, it turned out awesome, and I think at the end of this, I'm going to walk away with an $8,000 profit. So I've tied up hundreds of thousands of dollars of my money in this house. I had to work-
Jon: How many years of your life have you lost? Just out of curiosity.
Matt: And again, I tried to organize this one in the best way possible. I'm not doing any of the work. It's going to be a pro. It's going to be really hands off. So tied up all that money, all that time and effort, and at times, stress and frustration, chasing the contractor, putting it on the market, realizing even as a realtor, our expectations weren't going to be met based on the market feedback. We eventually sold it. I'm happy that we sold it. We talked about converting it into a rental instead. Happy to let it go. But for $8,000, I could have made more money with other investments.
Jon: Well, I was just going to say that, Matt. If you put that 8,000 in terms of rental income or your, I guess, return on investment with a rental property... We talked about the three silver bullets of real estate rental investing and thinking about appreciation, mortgage paydown, and the cash flow. Matt, what would you say if you looked at the $8,000 that you made in profit on this deal, how does that translate and compare to, say, one or two of your rental properties that you've had in the past on the gain that you get per year on that?
Matt: Infinitesimal, dismal, awful. Because with flips, you're only able to use one of those silver bullets, and in this case, it's not passive appreciation. You're actively, you're forcing the appreciation of the property. That's what a flip is. You're using that appreciation silver bullet. It's the only one, because there's no cash flow, obviously, and there's no mortgage paydown. In this case, actually we paid cash for the property.
So you guys are the math guys. So let's say that my total costs on this property, I had a partner on this property, so I would've put out something like $210,000 over the course of those six months. I made an $8,000 return, some of which I'll end up having some tax implications for as well. You guys tell me what's the rate of return. And we could certainly have done better. I know that implicitly without even knowing what the percentage is.
Kyle: We're going to use some proportional reasoning here and go, okay-
Kyle: ... 8,000 of a hundred thousand is 8%. And then you've doubled that to 200 or over 200, so you're looking at less than 4%, because you're going to double the amount, half the rate, and then all of a sudden, you're like, "But now we haven't annualized that." Right?
Jon: Right, I was going to say, "That's for how long?"
Kyle: But I would argue-
Matt: Six months.
Kyle: ... though... So if it was six months, then now we could double the rate and say it's eight. So let's say you earned about 8% on all that money. However, I'm going to argue that 8% for the amount of risk, stress, work, right? If you take those hours that you worked on that deal.
Whereas if I look at it and I go, "Okay, I've got a long-term rental..." And let's just say, I'm just pulling numbers out of the air here, let's say it's a $1,500 mortgage on this long-term rental. Okay, so we take that $1,500. In the early years, if it's, say, amortized over 25 years, in the early years, you're paying more interest than principal. So if let's say we adjust down, we say it's... Let's just say $600 is how much you are paying down in principal. So less than half of that mortgage amount. And we do that for 12 months. Or we'll do it for six months. For six months, the mortgage paydown alone is $3,600, and all you had to do was let the bank accept the money on behalf of the renter.
Wait, we didn't count your cash flow, right? Because we didn't buy the property without cash flow. Wait, we didn't account the potential appreciation. And really, all you needed to do was make sure that the rent came in, which there's a risk there. They might not pay. We've had that happen too. But there's so many fewer variables in our opinion.
However, if you're listening to this and you're going, "These guys don't know what they're talking about. Flipping's where it's at," then you're probably not even listening to this podcast anyway, because we're trying to get people who are trying to get in early or on the first investment or they're trying to figure out what to do with their money in order to create that wealth. But if you're already on that flipping path, you probably haven't made it to episode, what is this, 15. You're probably gone. You're like, "These guys are too slow and boring for me. These guys are too conservative or too safe for me," and that's totally fine.
But if you want to go the other way, I just want to go back to what you said about... Jon, you were saying just about how do we try to ensure that we're prepared for some of these swings on a flip. And if you just think of all of the variability on all of the decisions that have to be made, picture here, if you're watching on YouTube, I've got my hands separated. If it could cost this low or go up this high. And if you just think that on any string of five or 10 items, you hit on that top end of your range, your budget is now blown up way more than maybe you've anticipated.
Most people look at that range and they say, "Okay, well, HVAC system's going to cost me about blank." When they say "about," they tend to pick an average. So they're picking somewhere in the middle. But hey, when all of a sudden, lumber prices go up, the cost of even screws and nails and other things are going... Everything's going up, labor's going up, all of a sudden, now it's like, "Whoa, we're actually above that range that we originally anticipated. And oh my gosh, the market has shifted and now it's taking longer to sell properties, so now my holding costs are going to go up."
So this isn't to scare people, it's to make sure that if you're still nodding your head and you're like, "Oh my God, I can't wait to dig into a flip. I love it. I'm thriving to do this," then awesome. Just make sure that you are aware of all of the uncertainty that can go along with it.
And the people who are going to take those variables and they're going to account for those variables and do it well, those are the people that are going to be super successful and they can earn a lot of money. It's just we just know it's not us. I know it's not me anyway. I'm like, "I just don't want to do that work." It just doesn't suit me. I don't sleep as well at night. And I would just much rather do something that I know in the long run, doesn't matter what the market does short term, long run, we know real estate's going to be A-OK, so I want to make sure that we get into properties that are high quality, have cash flow, and no matter what happens, as long as we can pay those bills, we are going to be good to go.
Jon: You bring up an interesting kind of counterargument here, Kyle. When we talk about real estate investing with rentals on all the episodes that led up to this particular episode, we talked about budgeting for these items, budgeting for vacancy, budgeting for fixing up properties and capital expenditures. We talked about all the nuts and bolts of making sure the numbers worked. And when you think about the list, and a few episodes ago, we shared our spreadsheet on how to analyze a deal and we said we would not get into a rental deal unless the numbers came out real nice. So go back and listen to that episode if you are unsure of what we're talking about. But that's a long list.
And then what you just said is there are a lot more variables. Is that what I'm hearing right now, there's more variables to consider here than rental? Because it sounds like there's a lot with rental and what can go wrong with a rental unit. And I think what I'm hearing you say is there are things that can go wrong there, but we've budgeted for them. Now we're budgeting for our flip as well, but you're saying there's a lot more variability in what can happen.
Matt: Yeah, Jon, I think that there is more variability. I think that this is about knowing yourself and deciding the right investment strategy for yourself as well. So from our perspective as teachers, from our audience's perspective of professionals who likely have day jobs already and are doing investing on the side, the flipping part doesn't work. As alluring as it seems, as sexy as it looks on TV, it just doesn't work.
Another variability is when you're looking at single family homes, you're dealing in the most competitive real estate marketplace as well in terms of trying to find a deal. And one of the common sayings is make your money on the buy. So in other words, you need to buy as cheaply as possible. That flip I talked about making $8,000 on, I bought it for $225,000. You'd be hard-pressed to find a cheaper house in our real estate marketplace than what I bought that for, and yet, fast forward to the end of the flip, I'm still barely turning a profit on it.
Now, it might have been an interesting case study had we turned that into a rental, but at the end of the day, it just didn't fit my primary investment strategy, which is multi-family rentals, buy and holding those. So I think that this is largely about knowing yourself.
If you're someone who is looking to be the active partner in a project, you want to be hands on. Maybe you're handy, maybe you're a contractor. Maybe you don't have the capital, but you have the know-how and the time and the energy. Well, then doing these flips can be great. People love them because they're big chunks of cash or they can be a big influx of cash if you do well.
So I get the allure, I get even people who want to do them, but I would even argue for those people that are able to do the flips, I think that they're better off looking for multi-family properties. They can renovate them themselves if they want.
Kyle: Live in one maybe.
Matt: And over the long term... Yeah, live in one. House hack. So live in one and rent the other. For me, my investment horizon is long term. I don't need to make this money today, next week, next month, or even this year. I want to make it continuously over a long period of time. That is the investment strategy that we advocate for and that we are using. And I recognize that might not make sense for everyone, but for us, it certainly does, and I think largely for our audience, it does as well.
Kyle: I love it. I love it. No, that's so true. And I think you nailed it, Matt. It's like if you are eager to be actively involved, which means on the phone a lot, probably every day, visiting every day, if that is you, awesome. We're not saying you cannot make money there. You can. We can't because we will not do that. We won't do it well enough. So that's why it doesn't work for us.
The other thing I think is important for people to know too is that if you're going to be successful flipping a property, you have to also think about all of the work and the effort that has to go into your system of finding properties, right? So I mean, that means you're knocking on doors, right? You're dropping flyers. You're doing bandit signs. You have to do a lot of prospecting in order to find properties that haven't hit the MLS typically, right? Now, I say, "typically," because over the past couple years, you could still potentially pull a property off the MLS and maybe flip it if you were quick enough, because the market kept going up so dramatically.
But again, that's not routine. That's not typical. And therefore, that's not really a strategy that we really wanted to commit too much energy or time into. So if you're up for that and finding properties that are significantly below the market value, then there's a potential. But just like you said, Matt, your property that you picked up was well below market value. And on paper, it seemed as though there was a massive profit to be had, and maybe you could have got a better profit if you, Matt, yourself went out and priced everything and literally went out and got every subtrade and you subcontracted the whole thing. Maybe you could have got more profit. But that was not your initial intent.
Jon and I right now are in on a property, and it's like the flip from hell. The agreement we're in and so forth with the contractor that we're working with, who will remain nameless because I want them to finish the job, but if they don't finish the job, I'm going to... No, I'm just kidding. But this person is taking forever to do everything. And I know the person does quality work, but it reminds me, Matt, a long time ago, you had mentioned something, it was the first time I ever heard it, it was called the iron triangle. You shared it with me and I was like, "Yeah, I guess that makes sense."
It was this idea... I think it was Dr. Martin Barnes in 1969 was sort of the first person to sort of articulate this idea that there are three different constraints that are kind of tugging on each other, and it works really well when it comes into projects and managing projects. That's that you can do things cheaply, you can do them good, or you can do them fast. And it's hard to do all three really well. So it's like if you want it really fast, you're probably giving up some quality, you're giving up some cost or some savings, because the person who does it fast is probably going to demand more cost or a higher cost in order to do it.
And the opposite's true too. You can maybe do it cheaply, but guess what, maybe the quality now goes down. And maybe it's still fast because it's cheap, but now quality's down. And it seems like-
Jon: Two out of three.
Kyle: ... you can get the two out of the three of those things. Right now, Jon, I would argue that the iron triangle is not working for us, because I feel like we're getting none of those three things at the current time.
Jon: Well, we must be getting good. We must be getting good, right?
Kyle: Yeah, I hope we're getting good.
Jon: So it's not cheap.
Matt: It's not going to help you.
Jon: It's not cheap right now and it's not fast. So by default, we must be getting the good.
Kyle: Yeah, absolutely.
Jon: This is actually a good example to chat about. Let's say you said earlier that we'll never say never, because it's possible that we're in this situation again. But maybe you want to share the strategy that we took to help step into this deal that can actually... We didn't want to flip, but it's like, "You know what? We're going to take this particular strategy in this flip so that we can think about our risk factor and go, 'Look, if this happens, this is what we're going to do. If this happens, this is what we're going to do,'" because I think we're in a unique situation here with this flip.
Kyle: I feel like this could potentially be its own episode, but we're going to dig into it because it's worthwhile. Originally, just to kind of frame this for everyone, this actually wasn't introduced to us as a flip opportunity. This person, the actual contractor in this case, actually approached us and wanted us to lend privately to them. And ironically, we just had a potential joint venture call last night with a potential joint venture who wants to be involved in any of our future deals. We had a great call last night, and this person was talking about lending money privately, and we discussed some of the pros and the cons of it.
Lending privately, unless it's arranged very well and secured against property and all of these details, which costs more money, and therefore, happen less often, is something that we typically don't do a whole lot of. So with this particular person, I said, "Listen, instead, what we'll do is we will buy the property. We will take ownership and put our name on the property, and we will have a trust agreement that cuts you into the deal where we will only take private money at the end, not benefit from the flip profit."
So it's a very creative strategy, but really the only reason why we did it was because we're like, "We would like to earn private money, but we do not want to have the risk of having to go try to get money." I don't know anyone out there... Hopefully it never happens. It's never happened to us yet. But you should probably think about what would happen if let's say you lend money privately to someone and they owe money to a lot of other people and they have no more money to give you. You can take them to court, you can do all you want, but if they don't have money to give you, who's giving it to you? The answer is nobody.
So for us, we were like, "Hey, worst case scenario, on this particular deal, the person would walk and we own this property." So really, in our minds, even though it's a flip in that person's mind, this is kind of like private lending with the safety net of at the end of the day, we will get this property in whatever condition. It might be in unfinished condition, for example, if that person was just to walk away, but at least we have it.
And if you go all the way back to the early episodes, my number one reason for entering real estate was so I could physically go and knock on the door of the investment, knowing it is mine. Even if right now it's not in the best condition, or maybe I can't even sell it to break even at this point, what we could do is we could go finish this work and then, guess what, just like Matt had said earlier about his property, we could rent it and just keep it going. Is it ideal? Is that what we want to happen? No. But we wanted to make sure that we covered our butt on this particular deal so that we're not running around, having to sue people, how are we going to get our money back, blah, blah, blah. At the end of the day, we're going to have a property. And even though it's annoying, it's not necessarily what we want, at least we walk out with an asset that can still produce us some cash flow.
Jon: Yeah, and I think we're in a safer position that way compared to the private money that you had described. And I think people who are flipping are probably buying their properties, flipping them and reselling them. But the question that might be, if the market turns, what are you going to do with that property? Have you thought about what will you do if blank happens? Right? I think that's an important lesson to think about and plan for. If the market drops and you can't sell it for a profit, are you prepared to turn around and rent it out? Because that was going to be our plan, right? We might take this thing and rent this thing out if it doesn't complete in the appropriate amount of time for everybody to earn money on this. So I think when you're doing your flip, you definitely want to think about these downsides and upsides.
But let's start summarizing here guys, because I think we've tried to make a case here for why we don't want to flip, even though we're involved in some flips and we may be involved in flips in the future, but we don't want to be, because it sounds like there are a lot of variables that we don't want to plan for. And I think going back to Matt's big idea here is that, "What kind of investor do you want to be?" And we want to be a very hands-off type investor.
So therefore, when those variables change and those variables happen, on the rental side of things, we're okay with that because we've already planned for, we've got a system in place that deals with all those variables so that we're still very passive. But on this side, it's harder because they're so short term to get that system in place to deal with those variables. Those variables are going to change and we're going to have to be more hands-on, and that's not who we want to be. And I think we've kind of articulated here and hopefully made a case here that we can get better returns on the rental side of things than the flipping side of things for us and for a long-term strategy.
Matt: It cracks me up that we've just spent 30, 40 minutes talking about all the reasons why we shouldn't flip, and yet we are all currently involved in flips. I think that speaks to just the opportunity mindset with investing. You've got to be open-minded, you've got to be pragmatic, you've got to be fluid. So even though we don't like them, we're involved in them currently. We'll probably be involved in another one. But this is really all about controlling our risk, controlling our variables, and we do that through multi-family long-term investing.
So my big takeaways here is that it's certainly right for some people, but I think that group is a small number of people, and that I think by and large, the best long-term success, the best generational wealth building is to be found in our predominant strategy, multi-family investing. There's some great stories from flips and there can be some fantastic learning to come out of it, but much of that learning is done on the failure side when it comes time to flips, at least in our realm of experience.
Kyle: I was going to just say exactly that. I think my big takeaway away is that guess what, when you're doing what you're doing, those people who are listening right now, even if you're new to, "Hey, I want to start investing," and maybe it's real estate, maybe it's something else, maybe it's flips, maybe it's long-term. The end of the day, you may not know what the right fit is for you until you do it and realize that it's not for you. And then maybe like us, you might do it five or six more times and then realize it's not for you. And then who knows, six months from now, we might find ourselves back in there again to just take one final blow, one final black eye to say, "Wow, we should not have done that."
So just keep in mind, again, cover your bases as best you can. You can't do things perfectly, but what you can do is you can always look at every opportunity as that. Even if it's a failure, look at it as an opportunity to learn to kind of grow from it and to decide what's going to help me get closer to my goal. That personal Belize there that Don Campbell talks about, and Matt so handily has brought me towards in thinking about. That's something that I hope you take from this podcast.
So friends, if you haven't yet, if you found this episode or other episodes helpful, you don't know how helpful it is to leave a five star rating and review. And hey, remember, you won't know how that feels until you do it, and I promise you it's not going to be a mistake taking on our next flip. So head over, leave a five-star rating and review, and do us a solid and share it with your friends and family.
Matt: All links, resources, and transcripts from the episode can be found over on our website, investedteacher.com/episode15. Again, that's investedteacher.com/episode15.
Jon: Earlier in the episode, Kyle mentioned that we had a chat with one of you who had listened to the episode and reached out to us for potential JV partners to go in our next deal. And if you are looking to get started in real estate and not sure you want to do this alone, you want partners who have done this before, reach out to us. We would love to partner with you and talk about with you to see if, hey, you're the right fit. So all you have to do is head on over to investedteacher.com/jv. That's investedteacher.com/jv. Fill out a short form, and you'll be on our list for our next deal.
Kyle: Well, then, my friends, invested students, I think it's that time for class dismissed.
Matt: This is a reminder that this content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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