Real Estate Flippers are Flipping Out

It's been a long time since I wrote anything related to real estate (RE), especially about flipping houses. I heard on Bloomberg yesterday that the real estate flippers are exiting the market as fast as they can because the real estate market is starting to slow down. That's interesting news because of my personal history with RE. I have been a real estate investor who wanted to be a flipper but got caught in the 2007 slowdown. Instead of flipping, I became a landlord which has worked out OK over the years.

The fact that real estate flippers are exiting the market fast comes as no surprise to me. Everyone wants to get rich so fast that they forget that selling houses can take a long time, especially if the market suddenly turns cold.

Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it. So at 27 he started a side gig flipping houses in the booming San Francisco Bay Area. He was hooked after making $300,000 on his first deal. That was two years ago. Now home sales are plunging. One property in Sunnyvale, near Apple Inc.’s headquarters, left Pan and his partners with a $400,000 loss. “I ate it so hard,” he says. via Bloomberg

In order to succeed in real estate, you have to buy really low. You make your money when you buy, but the lure of easy riches is hard to ignore. Especially if you take a flipping course.

Many flippers are professionals who’ve been in the business for years. But the latest boom has also lured people such as Rachelle Boyer in Seattle, who got into property investing after attending a $25,000 real estate coaching program (emphasis mine).

$25,000 is a lot of money that you can save by joining a real estate investing group or reading a few books. My favorite books have always been Pre-foreclosure Property Investors Kit and the 16% Solution. One is about buying real estate before or after the bank repossesed it and the other is about investing in tax liens.

The sad thing is that a lot of these flippers probably bought into the idea of doing hard money loans, leveraging, and hiring out all kinds of services to get rich quickly. In the end, you churn through a lot of money and everyone else makes money off you. Don't get me wrong, YOU can make money in real estate but it's hard and requires deep pockets.

The moral of the story? There's no get-rich-quick method, only schemes. Schemes evaporate with people holding the bags.