(This article first appeared in Real Estate Investor's Monthly.)
I would like to say this book is awful because it has a number of annoying features. It’s not awful, just disappointing and somewhat lame.
The annoying features are too much leading (space between lines of type), tons of totally superfluous diagrams which appear, like the leading, to be an attempts to make 100 pages of information look like 400. The book is also very repetitive, again, to fatten it.
This is supposed to be a how-to real estate book, but it appears that someone involved in the writing doesn’t really want to write how-to books. He or she wants to write novels. Thus do we have discussion of “characters” and “stories” and some fictional investor couple complete with snappy dialog. Are they hoping to sell the motion picture rights?
The great William Nickerson used a hypothetical couple in his How I Turned $1,000 into $5,000,000 in Real Estate in my Spare Time book. It worked when he did it. It most definitely does not work in Flip.
In the scientific method, step two is to research everything else written on the subject. The same applies to writing how-to books. It appears that the authors of Flip could not be bothered with that. Had they done so they would have found a more refined, advanced version of what they are trying to do in my books and in books by guys like Ted Thomas (pre-foreclosures) and Gary DiGrazia (probate). As I said in my How to Write, Publish, and Sell Your Own How-To Book, you should not write a book unless you believe the existing books on the subject are incorrect or incomplete. The Flip authors have produced a book that is less correct and complete than the existing books.
The book contains preliminary hypotheses about how one might do flips, but the authors have not yet refined them and tested them with adequate field experience. This in spite of the fact that they claim vast experience. If I understand correctly, the authors run a company that does fix-up construction work for relatively inexperienced wannabe flippers, mainly HomeVestors franchisees.
It appears that the authors are famous as contractors who have lots of experience with a piece of the flip pie, but who are writing about book about how to make the whole pie.
To put it in medical terms, they seem to be “off label.” Specifically, that phrase refers to using a drug for a purpose that the FDA has not approved. It is also used to refer to a doctor who is performing procedures beyond his or her training like an OB/GYN doing facial plastic surgery. It’s legal, but not in the training for that specialty.
The book is primarily the sort of conventional wisdom that is prevalent in get-rich-quick real estate seminars for beginners. Like that you should drive around your neighborhood looking for neglected houses.
I don’t think that’s a good idea. It’s too inefficient. It is also dangerous unless you have someone else to drive while you focus on looking at the houses. It’s the kind of tactic that sounds good to laymen and no doubt has worked on occasion, but is not what the professional investors I have interviewed do nor what I found.
They also tout the old “motivated sellers” line that you hear in the get-rich-quick seminars. All sellers are motivated. Selling is a royal pain in the neck. Only highly motivated people will do it. They list reasons why sellers are motivated to sell really cheap, but the list has just the normal motivations of all sellers like job transfer or divorce.
They say flipping is one of the best strategies available. No, it’s not. Rather, it is largely a myth that arises during periods of rapid appreciation. In fact flipping, which sounds quick and easy by its name, is one of the most complex, labor-intensive, risky real estate investment strategies. Those who do it generally own a large real estate brokerage firms and have in-house construction people as well as in-house property finders and marketers. The flip strategy probably requires a team of two dozen people. You also typically need lines of credit to make cash purchases. Is it viable? Yes. But it’s one of the most advanced approaches.
Flip says it can be done part-time. No, it can’t. It’s too complicated and too many man hours are required.
They say there are “many” institutional and private lenders who will finance “rehab investors, even first-timers.” I don’t believe that and they did not give any names or any other evidence to back it up. They really seem to emphasize the sort of giving-up-too-much-to-silent-partners equity financing that I bad-mouthed in last month’s issue.
Much of the book is fuzzy thinking. For example, they say to, “Stick to houses near the median selling price for an area. By definition, that’s where most people buy.” Aaagh! “The median selling price for an area?” What’s an area? If it’s a town, each town has a different median selling price. Some larger towns have more than one neighborhood and each of them has a different selling price. If it’s a region then there actually is a median selling price, but it is not, “by definition, where most people buy.”
Median, by definition, is the price that has half the prices above it and half below. For investors, median home prices are meaningless. The lower the price, the more buyers who can afford it. And in fact, experienced investors generally find the best deals at the low end, but not so low that subcontractors are afraid to go there. The higher you go up the price spectrum, the smarter the sellers get and the less likely they are to let you buy their house for less than market value. Flip says to avoid the high end unless you are experienced. Actually, the experienced guys I know avoid the high end because they are experienced. The reason to avoid the high end is there are too few bargains there. You avoid the median for the same reason only a little less so.
This book sounds like it was written by relatively inexperienced investors who still have a lot to learn about the details of flipping. It also hypes flipping as easy and risk-free. JTR