Flipping vs. Speculating

It should be made clear that there is a difference between flipping and speculating. While speculators may be a sub-set of flippers, they are, at best, the amateurs of the real estate investing family. Flippers who have consistent success are more conservative and have a fundamental approach to real estate investing. While it may not be as exciting as speculating, the rewards of more conservative flipping are nearly as generous, and they are paired with far less risk.

The biggest difference between flipping and speculating is that flipping works in any market, whereas speculating only works in certain places at certain times. Las Vegas from 2002 to 2004 was a great time and place to be a speculator, but if you were still in the market in 2006, chances are you got burned by more than the hot desert sun. Basically, speculating often works on the “greater fool” thesis – that you can always find a greater fool than yourself to take a property off your hands in the expectation that he will be able to find yet a greater fool. Eventually, someone is left holding the bag and that’s when the party is over.

Flipping, by contrast, relies on fundamentals. The idea is not to catch a shooting star in a rapidly appreciating market. Rather, the plan is to find undervalued properties, rehab them, present them in an attractive manner, and sell them for a reasonable profit. Not only is a rising market not a requirement of flipping success, it may even be a mild detriment! After all, it is a bit harder to find bargain properties in booming areas. Sure, it can still be done, but the point is that even falling markets are prime for flipping since the holding period is often too short for the value of the property to decline beyond the deep discount at which it is purchased. Assuming that you add value through rehabbing, you almost can’t lose!

Exit Strategies – Always Have a Plan B

While speculators often rely on the “greater fool” strategy, flippers tend to have one of two exit plans: 1) Quickly flip the title to another investor, or 2) Rehab and sell the property at the retail level. While the lion’s share of the profits go to the retailer, a quick wholesale deal can free up your cash (and energy) for the next deal.

If you take a fundamental approach to real estate rehabbing and flipping, your risk is limited and your profits are virtually limitless. It really is the best of all worlds.

The article shown above is a condensed version of the article “Bubble, Schmubble – Flipping Works in Any Market” by Bill Bronchick.  We most gratefully thank the author and Real Estate Investment Club for the courtesy of permitting RentaVenta.com to republish this work.