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The review below originally appeared in my newsletter Real Estate Investor’s Monthly.

In the parallel universe that I call Seminarland, flipping is big. It is big because seminar sellers prey on the weakest people and they usually lack cash and credit. Flipping—selling a property at the same time you buy it—seems to eliminate the need for cash or credit. Any required cash or credit is supplied by the ultimate buyer to whom you flip—or at least that’s the theory.

So the need for flipping is clear. And the age-old formula for business success is “find a need and fill it.” But too often, people make money by finding a need and only seeming to fill it.

Seminarland only
I have been intrigued by the idea of flipping, but the actual successful flippers I found in the real world indicate that it is the most difficult, most advanced of all real estate investment strategies. As a
strategy for beginners, it appears to be an urban myth. It works only in Seminarland.

So I was interested to find a book store book on the subject—Flipping Properties—by William Bronchick and Robert Dahlstrom. Bronchick is a lawyer-real estate guru. I do not have any big disagreements with him, only small ones.

You can see a debate between the two of us over getting around due-on-sale clauses by reading the articles he and I have at our respective Web sites. Mainly I find him to be a Clintonesque lawyer—trying to make too much of things like the definition of “is.” I have never heard of Dahlstrom. He is apparently a small builder.

More accurate title
Many real estate investment books have inaccurate titles. This is one of them. Much of the book—chapters 2, 6, and 8—is what I call a dictionary that is not in alphabetical order. A great many so-called investment books are really such dictionaries. That is, they just define basic terminology of the field.

Another bunch of chapters are just light, basic, generic advice on subjects like what’s a good deal, negotiating, rehabbing, being persistent, and so forth—stuff that would apply to almost all real estate strategies—not just flipping.

‘Instant cash profits’
The book’s subtitle is, “Generate instant cash profits in real estate.” As reader’s of [Real Estate Investor’s Monthly] recognize, that’s bull. And in case there is any doubt, the authors says things like, “you don’t get rich overnight” Apparently, they disagree with the subtitle.

Not much on flipping
There really is only one chapter on flipping per se—the first chapter. Unique aspects of flipping are also dealt with briefly in the chapters on finance, how to find deals, whether or not you will be classified as a dealer for income tax purposes. Fundamentally, there is not much in Flipping Properties on flipping properties.

Blank space
One of my pet peeves about books is blank space. This book has too much of that. Normal typesetting and layout—like this newsletter—uses 11/12 type/leading and margins of about .5 to .75 inches. Flipping Properties has 12/16 type/leading. Twelve-point type is not that unusual, but 16-point leading is almost a half of line of white space between each line. It also has inside margins of 1.75 inches and they use huge subheads and put two lines of white space above and below each. In short, the publisher thought the book wasn’t long enough, so they put in a whole bunch of white space to puff it up.

Genesis
It appears that the genesis of this book was that flipping is popular on the Internet and in Seminarland among beginners, therefore a book on the subject would make money. One would prefer a genesis of a couple of guys who were long-term, successful flippers telling us their secrets. My impression from this book is that neither author has done any flipping. The book does not have a single case history. They appear to have only nibbled around the edges of flipping in their careers. [Reed note: Some guy sent me an email saying that Bronchick did a $4,000 flip and that he knew Dahlstrom had also done a flip. I would not know. I just reviewed their book and it made no claim and offered no evidence that either had ever done a flip as I recall.]

Brokerage or flipping
I suspect that much of what is advocated as flipping is really unlicensed brokerage. Indeed, the two actual-case-history articles I wrote about real flippers both involved real estate brokerage firms that did flipping as part of their overall activity.

I have heard gurus say words like, “You’re really just bringing a buyer and seller together.” On page 2 of Flipping Properties, the authors say, “Investors who flip houses accomplish the same basic tasks that real estate agents accomplish.” Their point is how easy it is. My point is that if you are just bringing a buyer and seller together, you are not an investor, you are a broker.

It’s not just a semantic issue. Brokers are licensed and heavily regulated. If you are engaging in brokerage without a license and without complying with the various regulations, you are breaking the law. In some states, a lawyer can broker real estate deals without getting a real estate sales or brokers license.

Net listing
For example, one regulation some states have prohibits net listings. A net listing is one where the agents gets all the sale price above a net price to the seller. Flipping looks like a net listing in substance. The legal doctrine of substance over form says that the law will treat a transaction as what it really is, not what you say it is.

More profitable
Bronchick and Dahlstrom admit that the profit in flipping is about the same as an agent’s commission. But they say that the flipper makes more per hour because he has far fewer hours in the deal.

I suspect the exact opposite would be true. The agent is just an agent. The flipper is an owner—potentially long term if the sale takes longer than anticipated. He then has carrying costs and risks that an agent never has. Accordingly, the flipper must do far more due diligence than a mere agent.

Scouts
The authors say there are three types of flippers: scouts, dealers, and retailers. I disagree. Only what they call dealers are really flippers. Scouts may work with flippers and some dealers may fail to flip and thereby become retailers. The authors define retailers as investors who buy from dealers then sell for market value.

What the authors call scouts already have a name in the real estate business. They are called “finders” and the money they get is finders fees. Once again, agency may be a consideration. In NJ, for example, only brokers may be paid finders fees.

A career?
To hear the authors tell it, you can set yourself up as a full-time scout as a career and they offer a standardized format for gathering info. I do not believe that. I have rarely heard much about finders in my 34-year career.

The few I have heard about seem to be friends of investors or Realtors®. They are in a job position to know about upcoming sales and sell that information—often illegally because of state laws or breach of contract or fiduciary duty.

The amounts I have heard of them receiving were in the $100 range and they were so infrequent that it was just a way to pay for an occasional nice dinner out. The fees can’t be much higher because many leads don’t pan out. The authors say you get $500 to $1,000 each time it leads to a purchase. $1,000 sounds like a lot when you recall that they also say that the profit in a flip is only about $1,000 to $5,000—the size of a typical agent commission.

Also, the scouts I have known only have one client. The way the authors tell it, you could scout for a whole bunch of investors simultaneously. No way. Each investor will want to be the first you call. There can only be one first.

‘Dealers’
What the authors call dealers are what most people think of as flippers. They buy very low and sell low to sell fast. The authors correctly depict these guys as having Rolodexes of investors who want to be buyers of their flips.

They say “dealers” can make $3,000 a month part-time flipping “a property or two.” That’s not enough profit considering the work and risk involved in buying and selling a building. Heck, many top Realtors® would refuse to even broker a deal where they only earned $1,000 to
$1,500.

They also say that full-time dealers can make well over $15,000 a month “without ever fixing a property or dealing with a tenant.” If fixing is not part of flipping, why is there a lengthy chapter about it in the book?

Not dealing with tenants has its advantages, but vacant buildings have painful carrying costs. If you actually make $15,000 a month as a flipper, you will earn it—maybe not through fixing or landlording.

Buying and selling are well known to be more stressful than managing property. Flippers buy and sell simultaneously. Furthermore, to make $15,000 a month, you will have to buy and sell three to 15 properties a month according to the authors’ profit-per-deal standards. There is no free lunch.

‘Wholesale’ and ‘retail’
Seminarland has its own language. In recent years, seminar sellers have found the words “wholesale” and “retail” useful to sell seminars. But they are inappropriate and misleading. Those words come from the manufactured-goods business. Factories find it most efficient to make such goods in large quantities. Wholesalers buy them in lesser, but still large, quantities and sell them in lesser still, but still large, quantities to retailers who sell them one at a time to retail customers. This is a quite logical and efficient manifestation of the economies of scale inherent in manufacturing, shipping, and marketing. But absolutely none of this applies to purchase and resale of existing rental properties. The word “whole” in “wholesale” refers to large quantities.

Can you purchase real estate for less than market value? Absolutely. I wrote a two-volume book about it called How to Buy Real Estate for At Least 20% Below Market Value. But as I said in the overview chapter of that book, those bargains stem from two categories of situations: no one knows the property is for sale (e.g., Jim Stephenson’s sending letters to out-of-county landowners) or no one wants the property because it appears to have some overwhelming negative characteristic (e.g., overpowering pet urine smell).

The discount does not stem from the quantity of properties you buy. Rather, it stems from the incompetence of the seller at marketing the property, the incompetence of competing buyers at finding it and/or the incompetence of everyone involved at appraising it. The words “wholesale” and “retail” are effective at making laymen think they are getting a good strategy taught to them, but ultimately they mislead as to the way real estate works and thereby delay the student’s understanding of the field.

One good idea
Most investors say they like a book or seminar if it gives them just one good idea. I think that’s nuts. There ought to be about one good idea per page. But for those I will identify some stuff I found interesting.

The authors say virtually every city has at least one notary who will make house calls on 30 minutes notice. I was not aware of that and it could be useful for people using any speed-based strategy. Throw out ugly fridges and don’t replace them. The blank spot looks better than the ugly fridge and buyers don’t expect a fridge to come with the house.

The book strikes me as written by two guys who are not flippers, but who felt they had enough basic real estate knowledge to theorize about how flipping must work. I disagree. [Reed note: As I said above, a guy who claims to know the authors said they each did one flip to his knowledge. I cannot vouch for that. I can only write about the impression left on me by the book itself. I reviewed the book, not the lives of its authors.]

John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, Email: johnreed@johntreed.com

Copyright by John T. Reed