The Deal Is Made On The Buy

Janet asks Dave how he feels about flipping homes for extra cash. Dave thinks very few people can flip houses and make money because they don't understand the basics.

QUESTION: Janet on Twitter asks Dave how he feels about flipping homes for extra cash. Dave thinks very few people can flip houses and make money because they don’t understand the basics.

ANSWER: I’m a real estate guy. I love real estate. I really do. I want to encourage people to buy real estate. Very few people can flip houses and make money on them because they don’t understand the basics. If you borrow money to do it, your chances of ending up bankrupt are very high. The majority of people who flip houses for extra cash and use debt to do it become bankrupt. I’ve met a lot of them.

Can you make money flipping houses? Yeah. But if you’re going to do it, pay cash for the house. You have to remember—from an old real estate dog—when it comes to real estate, your money is made in the real estate business at the buy. When you buy it is when you make money. You obviously don’t get the cash in your hand until you sell it, but the point is, don’t pay too much.

I watch people buy a property for 85% of its market value and think they’re going to make money. You’re going to lose money. By the time you hold the property, go through the costs of closing it to buy it, closing it to sell it, paying some of the closing costs when you sell it, probably including a real estate agent in the process and in the discussion with the fee in that, you buy insurance on the property while it sits there, and by the time you do all of that, you’re not going to make any money. You’re going to lose money. That’s what I mean by not knowing what you’re doing.

People get all hopped up and hyped up, and they’re usually watching this stupid midnight cable get-rich-quick crap, and they’re getting ready to go bankrupt.

I love real estate. You can make a lot of money in real estate. But you make your money when you purchase it. It’s all about price of purchase. You want to steal it, or you don’t want to buy it. And you want to pay cash for it. If you’re not going to do that, don’t even consider getting in that business, because you’re going to go bankrupt.

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