THE UNSPOKEN DIFFERENCE BETWEEN FLIPPING/WHOLESALING VS. RENTALSMay 08, 2018
I’m about to share with you one of the most obvious yet overlooked and not-spoken-about truths in the world of real estate investing.
Truth #1 - Flipping/wholesaling houses is a JOB.
Yes, you’re not sitting in a cubicle, so it’s better.
But it’s still a job you have to show up to everyday. You have to do lots of different activities to make those types of businesses successful.
Marketing, sales, finances, operations, project/rehab management, disposition, transaction coordination, office management, etc...
Then everyone says “But Brian, I’m going to automate my flipping/wholesaling business so I can step out of it”.
First of all, I wonder why they want to step out of it. “I thought you were passionate about it?”
(wink wink, we’ll save that for another time)
But I say to them instead: “So who’s going to manage your people once it’s automated? They aren’t robots or software. They are human beings, who need to be managed, to be led.”
That’s usually when we have a “Hmmm…” dead-end kind of moment in the conversation.
At our biggest, my company had 10 employees.
I was the CEO. I had stepped out of every single other role in the company. I didn’t do any of the actual “day to day” type work. I was only the leader.
My business was “fully automated”, the way many people imagine it could be for them.
What did that mean for me?
Well, it meant that I got up every day and looked at my calendar, to see that I had 3-4 one hour conference calls that day with my team members, followed by reviewing spreadsheets, P&L’s, KPI’s, holding team members accountable to their duties, etc.
Oh, and I also had to do that part where I come up with the vision for the entire company, where we’re going and what we’re doing.
It’s like being the captain of the ship.
It was the hardest job in the whole friggin’ company!
And yes, technically, you COULD hire a CEO to run your company, but you have to give them full control of the company (visionary control included).
You would just be a shareholder at that point.
You’d also need to pay someone really good money to do that job (six figures or more), so you better be able to afford that, and still be profitable on top of it.
So I want you to know that no matter how amazing you make your flipping/wholesaling business, it’s going to be a source of ACTIVE income for you.
It’s a job that you have created for yourself. It will require a lot of your time and energy to sustain.
On the flipside, (pun intended), flipping/wholesaling is a much faster way to make larger chunks of income than you could make buying up rentals.
If your goal is to quit your job ASAP, it would be more effective than the rental game (although you should absolutely still buy rentals).
But you do need to ask yourself if flipping is something you even want to do, and if you would enjoy.
Ok, on to truth #2…….
Truth #2 - Buying Rentals Is A “Retirement” Plan
Yes, owning a rental portfolio is also a business. It’s not 100% passive, like buying stocks. There’s always going to be 1 or 2 things you have to deal with here and there.
So let’s get that out of the way.
But if you do it the way I do, it’s 98% passive. This involves putting a person in place for every part of it.
Like an admin assistant to handle things like renewing the LLC, paying bills, getting loans closed with the banks, signing closing docs, organizing documents like HUD’s, statements, tax stuff, etc. Oh, and a project manager to manage those rent-ready rehabs (you know, the 10K carpet and paint stuff that’s easy but still needs someone to oversee it).
And a few other roles, not in-house employees, but roles that guarantee your portfolio will both perform and be passive.
If you set it up that way, it’s largely passive and doesn’t require much work or cause many headaches at all.
Let’s talk about the income part….
Rental properties are much more passive than flipping, but they are NOT going to replace your income overnight.
Rental properties are a mid-term game. I could say “long-term” but I don’t think it takes that long.
I have a close friend who started buying rentals just one year ago after learning from me. He’s got 5 now and not only does he make 15K/year in passive income (that he didn’t have before).
He also has about 100K in equity in his small portfolio, which adds to his net worth.
All of that, in one year! That’s why I don’t call it a long-term game.
15K/year isn’t enough for him to live on, but it’s already making a difference in his life. That’s my point.
I think most people who have reasonably affordable lifestyles can quit their jobs and live on the income from their rental portfolios, in 5 years or less.
I know that’s a bold statement but I believe it.
I’m not talking about making loads of money. I’m talking about having 40-50K/year in passive income coming in. Enough to pay your bills.
What other retirement plan preaches “Retire in 5 years or less?”
I haven’t heard of one.
So regardless of what you do for a living (flipping, wholesaling, sitting in a cubicle, driving for Uber), you MUST be building your rental portfolio.
It’s how you raise your safety net. It’s how you “guarantee” retirement, even if you never make that business idea work out, even if you decide to stay at your job for a while.
There’s definitely some overlap here as well. You can find deals from your wholesaling/flipping efforts to keep as rentals. That’s a lot of work just to find a good rental deal if you ask me, but you can do it.
Also, you might pick a rental you own to renovate and sell to make some money (maybe it’s in an area that has appreciated a lot and ARV’s are high), and then reinvest those earnings back into more rentals.
But, I hope that if you were still a bit unclear on the difference between the two, and which one was for you, that this has cleared things up for you a bit.
If you’d like to discuss your real estate investing (and lifestyle) goals with me a bit more, I do free 15 minute chats, which you can book using the link below:
Look forward to speaking with you!