This is a real simple one people. Flippers with at least 2-3 years experience will see themselves here, and nod their heads. They know exactly what’s what when it comes to what they do and what their real estate investor buddies do.
Ya see, even if the flipper does well, he’s paying ordinary income tax rates on his profits. And if not? He’ll get caught soon enough. Seen it too many times. Most flippers though, earn their profits fairly, pay their taxes, then move on to the next one.
‘Course they gotta take out money for themselves before the movin’ on part actually, you know, moves on. After ’bout the third or fourth one, it becomes fairly clear exactly what’s what.
Here’s the dirty little secret flippers won’t bring up while chowin’ down on the BBQ this weekend.
They very rarely retire well at all. They hit 50 or so, then realize the sun is setting quickly their chances for a stellar retirement. It’s not a good feeling. I’ve consulted with several 50-something flippers in the last couple years. It ain’t been pretty.
They’ve discovered all flippin’s got ‘em is a bigger paycheck, higher taxes, harder work, and more liabilities. And they can’t stop, or it’s back to whatever job they hated before they started flippin’ real estate. They’ve built themselves a prison with no doors.
Please don’t misunderstand me — I think flippin’ properties is a great way to get a real estate investor started — given the right skill set and a solid Purposeful Plan. What happens though, is they get hooked on the relatively easy money. Before you know it, they have more and better cars, toys, houses, house payments, boat payments, etc. Now they’re flippin’ ‘cuz they have to — just to underwrite the lifestyle. Then this silly little market correction comes along and Boom! they’re upside down or fightin’ for their financial lives. Nobody told ‘em about corrections. Ah, that’s when the chart’s arrows are pointing down, and not eternally up.
We’ve seen this in San Diego and every other town we’ve been to. You think the market’s location matters? Not to flippers. Why? ‘Cuz it’s all about buyin’ low, sellin’ high, then getting the next one up and going before the cash runs out. No steady paycheck now. Nope, Uncle Murphy took care of that pipe dream. I’ve seen folks work six months from start to finish, end up with enough to take their family to Sizzler’s, then get up early the next morning to find the next one — all in the hope that next one will turn out better. Note: I speak with empathy, ‘cuz I’ve been there lived that. Could only afford In ‘n Out Burgers though, not Sizzler’s.
It has to.
Meanwhile their slow thinkin’ long term investment type friends, have been muddlin’ along, taking their gains slowly but surely. Exchanging up when appropriate, sheltering their day job income — or in the alternative their capital gains taxes — all the while watching their capital growth rate move their net worth into the thin air category.
Is there a strategy for the flipper to get off his deadly treadmill? Can he find a way to escape the cage he’s built for himself? Will Wally finish mowing the lawn before Dad gets home from work? Can the Beaver fix Mom’s favorite coffee cup — the one he broke gettin’ away from Lumpy?
The answers to all those questions and more this weekend.
To all the military veterans out there, and those presently serving our country — please accept my heartfelt thanks. I realize my freedom has been, is, and always will be preserved because of your efforts and sacrifice — sometimes the ultimate sacrifice. This weekend we think of you with pride, thanks, and our prayers for your continued safety.
Happy Independence Day.